TMI Blog2013 (8) TMI 961X X X X Extracts X X X X X X X X Extracts X X X X ..... is not permissible under law. The case of the Assessee, in our opinion, is covered by our aforesaid decision in the case of Sesa Goa Ltd. vs. JCIT (2013 (9) TMI 233 - ITAT PANAJI). Addition deleted - Decided in favour of assessee Disallowance of expenditure incurred on renovation of the temple - Held that:- It is not denied that transportation of the iron ore was not possible without the co-operation of the villagers as the movement of the trucks had to be through the village where the temple was located for which the Assessee has contributed the amount for renovation. The expenditure incurred for renovation of the temple is also not denied. For carrying on the business smoothly, it was necessary for Assessee to maintain cordial relation to ensure smooth movement of the trucks otherwise the Assessee would not have been able to transport the ore from the mines to the jetty for the purpose of the export. It would have affected the export earnings and income of the Assessee. The expenditure has been incurred, in our opinion, during the course of the business. Business expediency demands such expenditure to be incurred. The expenditure is neither a capital expenditure nor personal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kkar, Adv. R.S. Puranik, C.A O R D E R PER P.K. BANSAL : 1. The cross appeals have been filed against the order of CIT(A) dt. 20.12.2012. The Assessee has taken the following effective grounds of appeal - The CIT(A) erred in confirming the disallowance of ₹ 12,50,643/- made by the AO under section 14A of the Income Tax Act, 1961 r.w.t. 8D of the Rules. while the Revenue has taken the following effective grounds of appeal - 1. On the facts and in the circumstances of the case, the ld. CIT(A), Panaji erred in allowing the expenditure of ₹ 16,70,000/- incurred on renovation of temple when there is no proximate nexus between the business of the assessee and the expenditure incurred. 2. On the facts and in the circumstances of the case, the ld. CIT(A), Panaji erred in allowing the expenditure of ₹ 89,84,375/- incurred on construction of new bridge when there is no proximate nexus between the business of the assessee i.e. processing and trading of iron ore. 2. The only issue in the appeal of the Assessee relates to the disallowance of ₹ 12,50,643/- made by the AO under section 14A r/w Rule 8D confirmed by the CIT(A). 2.1 The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Dividend income. The AO merely observed that from A.Y 2008-09 onwards the position is that in all cases where the AO is not satisfied with the correctness of the claim of the Assessee in respect of expenditure incurred on earnings that do not form part of the total income, the expenditure on this account will need to be computed as per Rule 8D of the Income Tax Act. Our attention was also drawn towards the decision of Godrej Boyce Manufacturing Co. Ltd. vs. DCIT, 328 ITR 81 (Mum). Reliance was also placed on the submissions made before the CIT(A). Reliance was also placed on the decision of this Tribunal in the case of ACIT vs. Sesa Goa Ltd. in which this Tribunal vide order dt. 8.3.2013 held that the application of provisions of Sub-section 2 3 of Sec. 14A and Rule 8D is not automatic in each and every case where there is income not forming part of the total income. Before making any disallowance the AO is required to record satisfaction having regard to the accounts of the Assessee that the claim of the Assessee that the expenditure incurred is not related to the income forming part of the total income is incorrect. Such satisfaction must be arrived at on objective basis. O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO before applying Rule 8D. The main contention of the Assessee while is that there cannot be any disallowance under this provision. We have gone through the decision of this Bench in the case of Sesa Goa Ltd. vs. JCIT (supra) dt. 8.3.2013 for which the undersigned in the author. We noted that the case of the Assessee is duly covered by the said decision. In that decision, this Tribunal has elaborately discussed the provisions of Sec. 14A as well as Rule 8D and ultimately held as under : 14. We have carefully considered the rival submissions along with the order of the authorities below. We have also gone through various case laws and the provisions of the IT Act in this regard. The issue involved before us relate to the disallowance made by the AO by applying the provisions of sec.14A of the IT Act read with Rule 8D of the IT Rules. Sec.14A was inserted by the Finance Act, 2001 w.e.f. 1.4.1962. Originally this sec. provides that in computing the total income of the assessee no deduction shall be allowed in respect of the expenditure incurred by the assessee in relation to the income which does not form part of the total income under the Act. Subsequently, by Finance Act, 2002 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve in the submissions made by the assessee. The AO was not satisfied with the correctness of the claim of the assessee especially the explanation of the assessee that no administrative expenditure incurred on earning the dividend income. Considering the magnitude of the investments and the dividend income received, the AO was of the view that the disallowance made by the assessee u/s 14A of the IT Act towards the administrative expenditure is low on comparing the magnitude of purchase and sales made by the assessee and the investments of large magnitude cannot be made without proper analysis of the market condition/stock movement etc. The revenue was of the opinion, that the assessee has worked out the administrative expenditure and had not considered all the administrative expenditure. Both the parties before us vehemently relied on the decision of Godrej Boyce Mfg Co. Ltd. Vs DCIT 328 ITR 81 (Mum). 15. We have gone through this decision and we noted that in this case, the assessee claimed exemption in respect of dividend income of 34.34 crores u/s 10(33). The AO issued notices for disallowance of interest u/s 14A of the IT Act. The explanation of the assessee was that (i) 95% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim of the assessee in respect of the expenditure which the assessee claims to have incurred in relation to income which does not form part of the total income. Moreover, the satisfaction of the AO has to be arrived at, having regard to the accounts of the assessee. Hence, sub-sec (2) does not ipso facto enable the AO to apply the method prescribed by the rules straightaway without considering whether the claim made by the assessee in respect of the expenditure incurred in relation to income which does not form part of the total income is correct. The AO must, in the first instance, determine whether the claim of the assessee in that regard is correct and the determination must be made having regard to the accounts of the assessee. The satisfaction of the AO must be arrived at on an objective basis. It is only when the AO 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 AO 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 incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance would have to be effected u/s 14A of the IT Act. Therefore, in view of the decision of the jurisdictional High Court and the decision of the Hon'ble Supreme Court, we are of the view that sec.14A cannot be applied unless there is a proximate cause for disallowance. The onus to establish that there is proximate cause based on the relationship of the expenditure with the exempt income in our opinion is on the Revenue. Thus, the application of the provisions of sec. (2) (3) of Sec.14A and Rule 8D is not automatic in each and every case, where there is income not forming part of the total income. Sub-sec. (2) (3) are intended to enforce and implement the provisions of sub-sec. (1). Therefore, it is necessary for the AO first to ascertain whether there is proximate connection between the expenditure incurred and the income not forming part of the total income. If such proximate connection is established with the exempt income, the AO would be justified in applying the provisions of sub-sec (2) (3) of sec.14A and Rule 8D of the IT Act, 1961. The expenditure incurred u/s 14A would include direct and indirect expenditure, but relationship with exempted income must be prox ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing officer before rejecting the disallowance computed by the assessee must give a clear cut finding having regard to the accounts of the assessee how the other expenditure claimed by the assessee out of non exempt income is related with the exempt income. No discrepancy in the claim of the assessee was pointed out. The assessing officer in our opinion in view of the jurisdictional High Court decision is bound to record satisfaction as to how the expenses claimed by the assessee have been incurred on earning dividend income were not sufficient and correct. We have already held that the onus to prove in this regard lies on the assessing officer. Although the Ld. DR had vehemently contended and tried to build up his case by substituting the reasons given by the CIT(Appeal) in place of the AO, but failed to bring any cogent material or evidence in this regard which may prove that the other expenses claimed by the Revenue for apportionment had proximate connection with the earning of the dividend income. In our opinion until and unless this is proved or established by the revenue, the assessing officer does not have any power to reject the accounts of the assessee and take the shelter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Wimco Seedlings Limited Vs. DCIT., 107 ITD 267 (Del.) (TM), it has been held that there can be no presumption that the assessee must have incurred expenditure to earn tax free income. Similar are the decisions in: 1. Punjab National Bank Vs. DCIT, 103 TTJ 908 (Del.); 2. Vidyut Investment Ltd., 10 SOT 284 (Del.); and 3. D.J. Mehta Vs. Income Tax Officer, 290 ITR 238 (Mum.) (AT) In view of the above, finding no error with the order of the CIT(A) on the point at issue, the same is hereby confirmed. Ground no.3 is thus rejected . In the case of Jindal Photo Ltd. Vs. DCIT held in I.T.A.T. Delhi bench dated 23.9.2011 it was held as follows: In the year under consideration, it is seen that it is not incorrect when the assessee contends that no satisfaction has been recorded by the AO regarding the assessee s calculation being incorrect. Even so, Rule 8D of the Rules has been applied. This, in our opinion, is not correct. Such satisfaction of the Assessing Officer is a pre-requisite to invoke the provisions of Rule 8D of the Rules. The Learned CIT(A), therefore, erred in partially approving the action of the Assessing Officer . In the case of Avshesh Mercantile P. Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be stated that the subject matter of controversy between the parties has not been dealt with by the High Court. It was held that when the decision of the Tribunal is affirmed on the issue brought before the High Court, it is the decision of the High Court which becomes operative and which is capable of being given effect to for all intents and purposes. Keeping in view the decision of Hon'ble Gujarat High Court in the case of Nirma Industries Ltd. (supra), we have no hesitation to hold that the decision of the Hon'ble Bombay High Court in the case of Delite Enterprise Ltd. (supra) is a decision on merit which is binding precedent on us. As the issue involved in the present cases as well as all the material facts relevant thereto are similar to that of the case of Delite Enterprise (supra), we respectfully follow the said decision of the jurisdictional High Court and delete the disallowance made by the AO and confirmed by the learned CIT(A) on account of premium paid by the assessees on redemption of premium notes (OCPN) by invoking the provisions of section 14A of the Act. As regards the case laws cited by the Learned DR, it is observed that in none of these cases, the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the correctness of the claim of the Assessee in respect of expenditure which the Assessee claims to have incurred in relation to income which does not form part of total income having regard to the accounts of the Assessee. The AO straightaway went on applying Rule 8D while, in the first instance, the AO should have determined whether the claim of the Assessee that it has not incurred any expenditure with regard to the Dividend income is correct or not and such determination must have been made having regard to the accounts of the Assessee on objective basis. It is only when the AO is not satisfied with the claim of the Assessee, the Legislature has empowered the AO to follow the method for calculating the disallowance as may be prescribed i.e. Rule 8D. The AO instead of discharging his obligation, straightaway applied Rule 8D and made disallowance. He has put the cart before the horse which is not permissible under law. The case of the Assessee, in our opinion, is covered by our aforesaid decision in the case of Sesa Goa Ltd. vs. JCIT (supra). Respectfully following the decision in the case of Sesa Goa Ltd. vs. JCIT (supra), we delete the disallowance made u/s 14A. Similar view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 266 ITR 170 and also distinguished the case relied upon by the A.O i.e. Delhi High Court in case of Meattles vs CIT 68 ITR 79. After going through the above discussion the expenditure incurred by the assessee to carry on the business may be allowable u/s.37 of the IT Act., Addition made by the AO dismissed and assessee‟s ground of appeal is allowed. 3.1 We have heard the rival submissions and carefully considered the same. We have also gone through the order of the tax authorities below. It is not denied that transportation of the iron ore was not possible without the co-operation of the villagers as the movement of the trucks had to be through the village where the temple was located for which the Assessee has contributed the amount for renovation. The expenditure incurred for renovation of the temple is also not denied. For carrying on the business smoothly, it was necessary for Assessee to maintain cordial relation to ensure smooth movement of the trucks otherwise the Assessee would not have been able to transport the ore from the mines to the jetty for the purpose of the export. It would have affected the export earnings and income of the Assessee. The expenditure ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A). CIT(A) after going through the submission of the Assessee as well as the remand report of the AO took the view that the expenditure is a revenue expenditure and has been incurred for the purpose of carrying on the business of the Assessee following the decision of this Bench in the case of Chowgule Co. vs. ACIT, Margao, Goa in ITA No. 162/PNJ/2006 for A.Y. 2002-03 by observing as under: CIT (Appeals) Conclusion : Contribution to Usgao Bridge I have gone through the facts of the case, contents of the assessment order, written submissions filed by assessee, and various case laws referred and relied by the AO and the Assessee. and, remand of the AO and assessee‟s reply to remand report. The assessee in its submission has clearly bought the need for contribution for construction of the Usgao bridge, relevance of the expenditure being directly related to the business of the assessee and how the construction of bridge enhance the efficiency of the business by smooth transportation. On the similar issue in the case of Chowgule and Co. Ltd., Vs ACIT, Margao, Goa. The Hon'ble ITAT., Panaji Bench, Panaji ITA no. 162/PNJ/2006 for A.Y. 2002-03, it was held that contrib ..... X X X X Extracts X X X X X X X X Extracts X X X X
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