Contact us   Feedback   Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2016 (3) TMI 314 - ITAT MUMBAI

2016 (3) TMI 314 - ITAT MUMBAI - TMI - Disallowance u/s 14A - Held that:- Section 14A of the Act stipulate for disallowance of said expenditure which are incurred in relation to earning of exempt income while Rule 8D of Income Tax Rules, 1962 is a machinery provision which provides for method of computing disallowance u/s 14A of the Act . We have observed that there was a closing balance of ₹ 10.13 crores in the mutual fund as on 31-3-2010 while the average investment held by the assessee .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e which we have discussed hereinabove in this order. - Decided against assessee

Disallowance of claim of service charges u/s 40A(2)(a) and 37(1) - Held that:- As submitted by the assessee company, Shri Ubhayakar was providing services to both the companies. The assessee company was debiting 90% of salary of Sh Ubhayakar till 30-04-2008 to M/s Pidilite Industries Ltd. i.e. prior to transfer of employees w.e.f. 01-05-2008 in pursuance of demerger of the manufacturing unit of the assesse .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

company has placed on record the debit notes so raised for earlier year’s also which is placed in paper book page 20-26, which are accepted by the Revenue for earlier years. The principles of consistency has to be followed as laid down by Hon’ble Supreme Court in the case of Radhasoami Satsang (1991 (11) TMI 2 - SUPREME Court ) although we are aware that principles of res-judicata are not strictly applicable to income tax proceedings. In view of our above discussions and reasoning, the addition .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

, Accountant Member This appeal, filed by the assessee company, being ITA No. 1066/Mum/2014, is directed against the order dated 25-11-2013 passed by the learned Commissioner of Income Tax (Appeals)- 7, Mumbai (Hereinafter called the CIT(A) ), for the assessment year 2010-11. 2. The grounds raised by the assessee company in the memo of appeal filed with the Tribunal read as under:- I. The CIT (A) has erred in confirming action of assessing officer in making the disallowance u/s 14A r.w. Rule 8D .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

led to appreciate that the service charges were paid to Related Party for services of its employee and the Assessing Officer has disallowed fully such expenses without giving finding as to excessiveness or unreasonableness of such expenses. The Appellant prays that the disallowance u/s 40A(2) be deleted. 3. The brief facts of the case are that the assessee company is engaged in the business of trading of chemicals. During the course of assessment proceedings u/s 143(2) read with Section 143(3) o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

eedings u/s 143(3) read with Section 143(2) of the Act, the assessee company was asked to furnish the details of expenses incurred for earning exempt income and also show cause as to why the expenses incurred and claimed in respect of exempt income should not be disallowed as per section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962. The assessee company submitted that it has not incurred any expenditure for earning exempt income and hence no disallowance be made. The A.O. held .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

l II Formula: A X B/C A: Expenses not directly related to exempt income (interest) i.e. 936573. Since assessee disallowed the entire interest expenditure in the computation the same has not been considered again. B: Average value of investment on the opening and closing day of the previous year i.e. (25412797 + 101328169)/2 = 63370483 C. Average value of assets on the opening and closing day of the previous year i.e…. Rs. Nil III 0.5% of average value of investment on the opening and clos .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

to the total income of the assessee company by the AO vide assessment orders dated 04-02-2013 passed u/s 143(3) of the Act. 4. Aggrieved by the assessment orders dated 04-02-2013 passed by the AO u/s 143(3) of the Act , the assessee company preferred an appeal before the CIT(A) and submitted that it has made entire short term investments in Birla Sun Life Mutual Fund and majority of the investments is in the form of weekly dividend reinvestments plan . The assessee company submitted that divide .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

wed a sum of Rs.I0,000/-. In view of the above, the assessee company submitted that the action of the AO is unwarranted and uncalled for. The CIT(A) after considering the submissions as made by the assessee company held that the assessee company has claimed dividend income of ₹ 18,86,490/- as exempt u/s 10(35) of the Act. The assessee company has suo-moto made disallowance of ₹ 10,000/- u/s 14A of the Act. Prima facie, the disallowance made by the assessee company u/s 14A is not as p .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

re was no expenditure incurred by the assessee company for earning exempt income. The CIT(A) referred to the decision of Hon ble Delhi High Court in the case of in Maxopp Investment Ltd. v. CIT (2012) 247 CTR 162(Delhi) (HC) wherein it was held that the argument that if the dominant and main objective of the expenditure was not the earning of 'exempt income' then, the expenditure cannot be disallowed u/s 14A, is not acceptable. If the expenditure has a relation or connection with or pert .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

(A) held that the A.O. has only taken into account 0.5% of average value of investments on the opening and closing day of the previous year for disallowance u/s.14A of the Act and it comes to ₹ 3,16,852/-. Since the assessee company has made suo-moto disallowance of ₹ 10,000/-, the A.O. has rightly restricted the disallowance to ₹ 3,06,852/- (Rs.3,16,852 - ₹ 10,000/-) which was reasonable and the ld. CIT(A) confirmed the same vide orders dated 25-11-2013. 5. Aggrieved by .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

) of the Act . The assessee company has voluntarily offered for disallowance of ₹ 10,000/- u/s 14A of the Act. There was a closing balance of ₹ 10.13 crores in the mutual fund as on 31- 3-2010. The ld. Counsel for the assessee company invited our attention to page 11 of the paper book whereby all the transactions with respect to the Birla Sun Life Mutual Fund are reflected. The assessee company submitted that no borrowed funds have been utilised for making the investment. The A.O. ha .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e case of the assessee company to make disallowance u/s 14A of the Act. 8. We have considered the rival contention and also perused the material available on record. We have observed that Rule 8-D of the Income Tax Rules, 1962 is applicable from the assessment year 2008-09 as held by the Hon ble jurisdictional High Court in the case of Godrej & Boyce Manufacturing Co. Ltd.(supra). Section 14A of the Act stipulates for disallowance of an expenditure incurred in relation to earning of an incom .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

form part of total income being exempt income which in the case of the assessee company amounted to ₹ 18,86,490/- being dividend income exempt u/s 10(35) off the Act. The AO has not accepted the disallowance of ₹ 10000/- of expenditure offered by the asssessee as no basis of arriving at figure of ₹ 10000/- for disallowance is provided by the assessee company while ad-hoc disallowance was made by the assessee company. The assessee company has average investment of ₹ 6.33 c .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

A of the Act stipulate for disallowance of said expenditure which are incurred in relation to earning of exempt income while Rule 8D of Income Tax Rules, 1962 is a machinery provision which provides for method of computing disallowance u/s 14A of the Act . We have observed that there was a closing balance of ₹ 10.13 crores in the mutual fund as on 31-3-2010 while the average investment held by the assessee company in Mutual Fund during the previous year was ₹ 6.33 crores. The assesse .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the orders passed by the CIT(A) which we confirm and dismiss the grounds of appeal raised by the assessee company in this appeal. We order accordingly. 9. The next ground relates to the disallowance u/s 40A(2)(a) and 37(1) of the Act. From the details, it was observed by the AO that the assessee company has made payment of ₹ 6,86,351/- towards service charges to M/s Pidilite industries Ltd., which is an associate entity of the assessee company. The assessee company was asked to file the r .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e year Pidilite Industries has paid total remuneration of ₹ 62,25,890/- to Shri. A.D Ubhayakar. Pidilite Industries recovered only ₹ 6,86,351/- being 10% of the salary from the assessee company for services rendered by Shri. Ubhayakar. This amount is quite reasonable and may be allowed as expenditure incurred for business purpose." From the above submissions, the A.O. found that the assessee company failed to bring on record the necessary evidences that the services of Mr. A.D.U .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

charges on quarterly basis for lumpsum amounts without any working. Nowhere, in these debit notes, it is stated that the charges are for services rendered by Mr. Ubhayankar for marketing of VAM for the assessee company. The assessee company also failed to explain the business exigency for incurring such expenses. Thus, there is no reasonable basis for the assessee company to claim such expenses of "Service Charges" on the sales made to its associate entity i.e. M/s. Pidilite Industries .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

om the assesee company and merged with Pidilite Industries Ltd as per Hon ble High Court order s dated 18-1-2008. Majority of the employees of the assessee company including Mr. A.D. Ubhayakar was transferred to Pidilite Industries w.e.f 01-05-2008. As the salary of these employees were paid by the assessee company upto 30-04-2008, it had recovered salary from Pidilite Industries Ltd. fully except in the case of Mr. Ubhayakar, in which case 90% of salary was recovered from Pidilite Industries Lt .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

debit note was enclosed. Finally, it was stated that the payment made to Pidilite Industries Limited has not given any tax benefit to the assessee company. The said service charges paid by the assessee company is nothing but to follow the principle of accounting so that the expenditure incurred by another person on behalf of the assessee company is given proper accounting treatment in the books of account. The CIT(A) after considering the submission of the assessee company held that the assesse .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

see-company for services rendered by Shri.Ubhayakar. It was stated that this amount being quite reasonable should be allowed as expenditure incurred for the purpose of business. The CIT(A) observed that it is stated that the services of Shri. Ubhayakar, employed with M/s. Pidilite Industries Ltd. are required and availed for marketing of VAM which is sold by the assessee-company mainly to M/s. Pidilite Industries Ltd. The question arises as to how the person working with the same company helps t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

otes, it is stated that these charges are for services rendered by Shri. Ubhayakar for marketing of VAM for the assessee company. In view of the above, the CIT(A) held that the AO has rightly disallowed the above sum of ₹ 6,86,351/-. The CIT(A) vide orders dated 25.11.2013 accordingly confirmed the orders of the A.O. 11.Aggrieved by the orders dated 25.11.2013 passed by the CIT(A), the assessee company is in further appeal before the Tribunal. 12. The ld. Counsel for the assessee company s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

007 and majority of the employees of the assessee company (including Shri Ubhayakar) were shifted to M/s Pidilite Industries Ltd w.e.f 01.05.2008. Earlier, the assessee company was raising debit note of 90% of salary of Shri Ubhayakar to M/s Pidilite industries Ltd. which are placed in paper book page 20 to 26 while Shri Ubhayakar was absorbed by M/s Pidilite Industries Ltd. pursuant to the demerger of the manufacturing unit of thee assessee company into M/s Pidilite Industries Ltd. and now M/s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ue Taxes have been paid to Government and he submitted that these expenditure should be allowed in the hands of the assessee company. 13. The ld. D.R., on the other hand, relied upon the order of the lower authorities and submitted that the ld. CIT(A) was right in confirming the order of A.O. 14. We have considered the rival contention and also perused the material available on record. We have observed that Shri Ubhayakar was working with the assessee company prior to demerger of manufacturing u .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version