TMI Blog2016 (1) TMI 615X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules - Decided in favour of assessee Proportionate disallowance of legal and professional fees and auditor's remuneration - Held that:- Legal and professional fee cannot be attributed to earning of management fee from Mena House Oberoi Hotel, Egypt, URA. Even otherwise, during this year, no legal service was provided to this concern for earning of management fees, hence, there is no nexus with the providing of legal services and that of earning of management fees. Same are the arguments for the expenses of auditor's remuneration. Hence, we agree with the argument of ld. Counsel and allow these expenses. As regards to other expenses no argument was advanced on behalf of assessee qua assessee's appeal. Even we could not find any contrary argument on the expenses allowed by CIT(A) from Ld. DR. Accordingly, the issue of revenue's appeal is dismissed and that of the assessee's appeal is partly allowed. Addition made u/s. 2(22)(e) for deemed dividend - Held that:- The issue is covered by the order of the Tribunal in assessee's own case for AY 2007-08 and 2008-09 wherein held that the AO applied the provisions of section 2(22)(e) of the Act in case of loan taken by assessee from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is as regards to the order of CIT(A) restricting the disallowance made by AO by invoking the provisions of section 14A of the Act read with Rule 8D of the I. T. Rules, 1962 (hereinafter referred to as the Rules') for exempted income @ 1/2%. For this, assessee has raised following ground nos.1, 2 and 3: 1. For that the CIT(A) erred in confirming the disallowance under section 14A of the Act under Rule 8D(2)(iii) of the Act. 2. For that no expenses having been incurred for the purpose of earning the dividend income and there being no proximate and dominant nexus with the investment in shares of EIH Limited which was made in the earlier years and not in the year under consideration, the CIT(A) erred in confirming the disallowance as made by the AO. 3. For that the disallowance under Rule 8D(iii) of the Income Tax Rule 1962 (rules) at % of the average value of holding of investment is illegal, without jurisdiction and authority of law. The disallowance as confirmed by CIT(A) under Rule 8D(iii) of the Rules is beyond the disallowance permitted under section 14A of the Act and no such disallowance could be made on a notional basis which is not with reference to any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be attracted or invoked. It is also a fact that there is no fresh investment made by the assessee during the year and these investments are primarily made in group companies with the intention to acquire and retain controlling stakes and even dividend is received through ECS. This practice assessee is following consistently and the same has not been disputed in the past assessments. Now it is well settled that even after insertion of rule 8D of the Rules, the AO must satisfy himself that the claim of expenditure made by assessee is incurred before invoking this provision. The AO has simply given a finding that some expenditure might have been incurred for earning this exempted income thereby Rule 8D of the Rules was invoked. There is no satisfaction recorded by the AO for invoking Rule 8D of the Rules despite the fact that the assessee has disclosed huge expenditure for earning of exempted income and the same was disallowed himself, the correctness of which is not in doubt. The assessee has enclosed details of investment made in group concerns and subsidiary companies in its paper book at page 8 and details of dividend income earned at page 13. In view of the above facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e further make it clear that the assessee would, during the pendency of this Civil Appeal, pay tax as if section 43B(f) is on the Statue Book but at the same time it would be entitled to make a claim in its returns. In view of the above, Ld. counsel for the assessee fairly stated that let Hon'ble Supreme Court decide the issue and by that time the matter can be remitted back to the file of AO for fresh adjudication in term of the decision of Hon'ble Supreme Court. On this, Ld. CIT DR has not objected to the same. Accordingly, we set aside this issue to the file of the AO to await the decision of Hon'ble Supreme Court and decide the issue accordingly. This issue of assessee's appeal is remitted back to the file of AO and allowed for statistical purposes. On query from the bench, Ld. Sr. DR could not controvert the above submission of the assessee by producing any contrary material in this regard. Hence, following the decision cited supra, we set aside this issue to the file of AO to await the decision of Hon'ble Supreme court and decide the issue accordingly. Therefore, this issue of assessee's appeal is remitted back to the file of AO and allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Postage, telegram telephone ₹ 4,25,511/- General charges ₹ 27,35,836/- Auditors' remuneration ₹ 19,20,000/- Legal, professional consultancy fees Rs.2,61,97,774/- Total Allocable Expenses Rs.6,29,95,911/- Therefore, prorate expenses = ₹ 6,29,95,911 x (5,06,73,892/35,26,90,532) = ₹ 90,51,130/- Aggrieved, assessee filed appeal before CIT(A), who added back ₹ 46,43,429/- to the business income of the assessee instead of ₹ 90,51,130/- by observing as under: I have gone through the said written submission, wherein the appellant had offered to tax ₹ 38,97,588/-. On perusal, I do not fully agree with the revised working of the appellant as I find that the appellant in its working as per annexure-II, did not consider at all the legal and professional fees and also the auditors' remuneration. I do not agree with the appellant that these two items of expenditure have no nexus with the earning of foreign managem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered as confirmed if the fact of allotment of share in subsequent years is not proved. For this, assessee has raised following ground no. 7: 7. For that the CIT(A) erred in holding that the addition made under section 2(22)(e) of the Act should be considered as confirmed if the fact of allotment of share in subsequent years is not proved. The CIT(A) failed to appreciate that the similar point has been set aside in the earlier years to the AO for his adjudication and as such the finding given by him that the addition on account of deemed dividend as considered and confirmed is erroneous and illegal. 11. Briefly stated facts are that the AO treated the advances of ₹ 7.65 cr. and ₹ 55,00,000/- received by assessee from Oberoi Investment Pvt. Ltd. and Oberoi Plaza Pvt. Ltd. respectively as deemed dividend u/s. 2(22)(e) of the Act. Before the AO, it was argued that in respect to Oberoi Investment Pvt. Ltd., that sister concern is in the business of money lending and qua that NDFC certificate was produced before the AO. In respect to advance received from Oberoi Hotels Pvt. Ltd. it was claimed that the assessee is not shareholder of the aforesaid company in term of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken by assessee from Oberoi Plaza Pvt. Ltd. and Bombay Plaza Pvt. Ltd. since Oberoi Plaza Pvt. Ltd. is a 100% subsidiary of the assessee and Bombay Plaza Pvt. Ltd. is a 100% subsidiary of Oberoi Plaza Pvt. Ltd. During the course of appellate proceedings, the assessee filed fresh evidence before CIT(A) in the shape of Memorandum of Association which establishes that the object ancillary to the main object includes money lending, thus, for both the companies the business includes lending of money/advance. These documents were not examined by the AO, hence, we are of the view that let it be examined by the AO and decide the issue afresh. Accordingly, this issue of both the appeals of assessee and one appeal of revenue is set aside to the file of AO and allowed for statistical purposes. On query from the bench, Ld. Sr. DR could not controvert the above submission of the assessee by producing any contrary material in this regard. Hence, following the decision cited supra, we set aside this issue to the file of AO to examine afresh and decide the same. Accordingly, this issue of appeal of assessee is set aside to the file of AO and allowed for statistical purposes. 13. The next ..... X X X X Extracts X X X X X X X X Extracts X X X X
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