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M/s Manipal Media Network Ltd. Versus Additional Commissioner of Income-tax, Udupi

Disallowance u/s.14A read with Rule 8D - Held that:- It is true that CIT (A) had followed his own order for A. Ys. 2009-10 and 2010-11 for confirming the disallowance made by the AO u/s.14A read along with Rule 8D(2)(ii) and 8D(2)(iii). Assessee had moved in appeal before this Tribunal for A. Y. 2009-10. This Tribunal held as seen from the facts on record that the assessee has not deducted any expenses direct or indirect, while computing its income from dividend income which is exempt under sect .....

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t the position is that the assessee has merely taken the stand that it has not incurred any direct or indirect expenditure in earning its dividend income which is exempt under section 10(34) of the Act. We are therefore of the view that it would be in the interest of equity and justice if the assessee makes its claim in this regard before the Assessing Officer. The Assessing Officer will examine the claim of the assessee and thereafter decide the issue in accordance with law and as explained in .....

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made by the AO u/s.14A of the Income-tax Act, 1961 ('the Act'in short) read with Rule 8D of the Income-tax Rules, 1962 ('the Rules' in short), which was confirmed by the CIT (A). 02. Facts apropos are that assessee, a printer and published had filed its return declaring income of ₹ 6,63,38,030/-. AO on an analysis of the balance sheet dt.31.03.2011 found that it had investments in Government securities, mutual funds and shares worth ₹ 6,55,87,862/-. Assessee had clai .....

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may observe that the total net worth of the Company as on 31st March 2011 is ₹ 2468 lakhs and there as the total investment in mutual funds and shares as on 315t March 2011 15 ₹ 666.96 lakhs. Thus it is quite evident that we have used the own funds for investment in shares. Further all the expenses incurred by tlze Company as deuuled III schedule 11 to 17 of the profit and loss account, were incurred in the ordinary course of business. No portion of the same is attributable to earnin .....

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enditure was incurred for earning exemption income was not acceptable as the investments in shares for earning exempt income always had a notional cost attached to it. Relying on the judgment of Hon'ble Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd. V. DCIT (328 ITR 81) and that of Hon'ble Apex Court in the case of CIT v. Walfort Share & Stock Brokers (P) Ltd. (326 ITR 001), AO held that even if assessee had not utilised any borrowed funds to make investments in tax- .....

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y the assessee and confirmed the addition made by the AO. 05. Now before us, Ld. AR submitted that CIT (A) had followed his own decision for A. Y. 2009-10 in confirming the disallowance made by the AO u/s.14A of the Act. However according to her, the said decision of the CIT (A) was carried in appeal by the assessee before this Tribunal in ITA.1266/Bang/2012, dt.25.10.2013. Ld. AR submitted that the issue was remitted back to the AO by this Tribunal for reconsideration. Ld. AR submitted that sim .....

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he order had directed as under : "5.3.1 We have heard both parties and perused and carefully considered the material on record. It is seen that the Assessing Officer, in the course of assessment proceedings noted that the Balance Sheet of the assessee as on 31.3.2009 reflected investments in shares / mutual funds at ₹ 4,36,23,215 (out of which ₹ 34,49,660 pertain to this year), on which it had earned dividend income of ₹ 1,10,74,523 which was exempt under section 10(34) of .....

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the case of Godrej & Boyce Mfg. Co. Ltd. V DCIT reported in 328 ITR 81, proceeded to invoke the provisions of Rule 8D of IT Rules, 1962 and compute the disallowance under section 14A r.w. Rule 8D as under : 1. Amount of expenses directly related to income which do not form part of total income NIL. 2. Amount of expenses not directly related to particular income Rs.21,80,167. 3. 0.5% of average value of investment in shares Rs.2,07,034. Total disallowance Rs.23,87,201. 5.3.2 On appeal, the le .....

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e 8D. The Assessing Officer has given cognizant reasons even to see from the angle of applicability of the case laws cited by the appellant. Further, I have gone through the case laws cited by the appellant. They are all for the Assessment Year's prior to the amendment to Rule 8D inserted w.e.f. 24.3.2008 applicable from A.Y. 2008-09 onwards. 8. The citation CIT Vs. Hero Cycles Ltd (2010) 323 ITR 518 (P & H) is for the A.Y. 2004-05. The second citation Maxopp Investments Ltd Vs. CIT (201 .....

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find the observation of the Assessing Officer that it is a composite business is correct. The Assessing Officer has also established that it is not just own fund but other funds as well which has a cost that has gone into the investments. The Assessing Officer has categorically given finding to that effect and gave cogent reasons clearly establishing his satisfaction for invoking the provisions u/s.14A r.e. Rule 8D. Hence I find that the Assessing Officer has correctly relied on the decision of .....

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llows: "Insertion of Subsections (2) and (3) to Section 14A : 25. Subsections (2) and (3) of Section 14A were inserted by an amendment brought about by the Finance Act of 2006 with effect from 1 April 2007. Subsections (2) and (3) provide as follows: "14A(2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such Income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing O .....

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this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under Section 154 for any assessment year beginning on or before the 1st day of April, 2001." (The proviso was inserted earlier by the Finance Act of 2002 with retrospective effect from 11.5.2001) Under subsection (2), the Assessing Officer is required to determine the amount of .....

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me, in accordance with the prescribed method, arises if the Assessing Officer is not satisfied with the correctness of the claim of the assessee in respect of the expenditure which the assessee claims to have incurred in relation to income which does not part of the total income. Moreover, the satisfaction of the Assessing Officer has to be arrived at, having regard to the accounts of the assessee. Hence, Sub section (2) does not ipso facto enable the Assessing Officer to apply the method prescr .....

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only when the Assessing Officer is not satisfied with the claim of the assessee, that the legislature directs him to follow the method that may be prescribed. In a situation where the accounts of the assessee furnish an objective basis for the Assessing Officer to arrive at a satisfaction in regard to the correctness of the claim of the assessee of the expenditure which has been incurred in relation to income which does not form part of the total income, there would be no warrant for taking rec .....

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on will empower the Assessing Officer, for an Assessment Year beginning on or before 1 April 2001 either to reassess under Section 147 or pass an order enhancing the assessment or reducing the refund already made or otherwise increasing the liability of the assessee under Section 154. 26. The circumstances in which the provisions of sub sections (2) and (3) were introduced by an amendment have been adverted to in a circular of the CBDT dated 28 December 2006. (Circular 14 of 2006) The circular n .....

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form part of the total income in accordance with the method that may be prescribed. The circular, however, reiterates that the Assessing Officer has to follow the prescribed method if he is not satisfied with the correctness of the claim of the assessee having regard to the accounts of the assessee." (underlining by us for emphasis) 5.3.4 Rule 8D was inserted by the Income-tax Act (Fifth Amendment) Rules, 2008, which were published in the Gazette on March 24, 2008. The rules specifically p .....

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e the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). (2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely: (i) the amount of expenditure directly relating to income which does not form part of total income ; (ii) in a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particul .....

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pearing in the balance-sheet of the assessee, on the first day and the last day of the previous year ; (iii) an amount equal to one-half per cent. of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance-sheet of the assessee, on the first day and the last day of the previous year." 5.3.5 In this appeal, the dispute in respect of the disallowance under section 14A r.w. Rule 8D is with regard to expenditure .....

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