TMI Blog2016 (5) TMI 1129X X X X Extracts X X X X X X X X Extracts X X X X ..... quarely covered by the decision of Co-ordinate Bench of Tribunal in the case of Shri N.Palanivelu Vs. ITO [2015 (10) TMI 1415 - ITAT CHENNAI] wherein held that section 40(a)(ia) is not applicable when there is no outstanding balance at the end of the close of the year relevant to the assessment year in respect of these payments. However, the assessee has not brought on record, the details of outstanding expenses or schedule of sundry creditors showing whether the impugned amount is outstanding at the end of the close of the previous year relevant to the assessment year either in the name of the party or outstanding expenses. Hence, in the interest of justice, we are remitting the issue back to the file of the Assessing Officer with direction to verify the claim of the assessee and the assessee shall place necessary evidence in support of his claim. Disallowance u/s 14A - Held that:- Assessee has considerable investments at the opening as well the close of the year under consideration. Therefore, the portion of expenditure attributable to the investments made by the assessee has to be computed as per Rule 8D of the I.T Rules. Therefore, the Assessing Officer was of the opinion t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case in favour of the assessee. On further appeal by the Department, the Tribunal had upheld the decision of the CIT(A). Aggrieved with the decision of the Tribunal, the Department is on further appeal before the Jurisdictional High Court. Meanwhile, the assessment thus completed was reopened by the AO by issue of notice u/s.148 dated 20.03.2013 on the ground that the TDS on the selling expenses debited in P L needs to be verified. The AO relying upon the decision of Hon ble Supreme Court in the case of M/s.GKN Driveshafts (India) Ltd. reported in 259 ITR 019 completed the assessment u/s.143(3) r.w.s.147 on 25.03.2014 by disallowing the certain expenditures u/s.40(a)(ia) of the Act. Aggrieved by the reopening of the assessment, the assessee preferred an appeal before the Ld.CIT(A). On appeal, Ld.CIT(A) observed that the assessment was reopened on the reason that the assessee is not deducted TDS in respect of certain expenses. Further he observed that the AO in the subsequent reopening within the time limit of four years from the end of assessment year and assessment finalized had for reasons mentioned in the order came to the conclusion that certain allowances and deductions were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied : firstly the Assessing Officer must have reason to believe that income, profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a). But under the substituted section 147 existence of only the first condition suffices. In other words if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is, however, to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to section 147. The case at hand is covered by the main provision and not the proviso. So long ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e close of the year relevant to the assessment year in respect of these payments. However, the assessee has not brought on record, the details of outstanding expenses or schedule of sundry creditors showing whether the impugned amount is outstanding at the end of the close of the previous year relevant to the assessment year either in the name of the party or outstanding expenses. Hence, in the interest of justice, we are remitting the issue back to the file of the Assessing Officer with direction to verify the claim of the assessee and the assessee shall place necessary evidence in support of his claim. 5. Further, we make it clear that if the impugned amount is not outstanding at the end of the close of the assessment year in respect of the expenses either as outstanding expenses or as sundry creditors, this amount cannot be disallowed. This ground is remitted back to the Assessing Officer for fresh consideration. In view of the order of the Tribunal, we are inclined to remit this issue to the file of the ld. Assessing Officer with similar direction. These grounds raised by the assessee u/s.40(a)(ia) of the Act is partly allowed for statistical purposes. Now we take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we are of the opinion that the disallowance under section 14A of the Act was squarely attracted and the Assessing Officer has rightly disallowed the claim. Our views are fortified by the decision in the case of Pradeep Kar v. ACIT 319 ITR 416 [Kar], wherein the Hon ble Karnataka High Court has observed and held as under: The claim of the assessee for deduction of interest on the amounts borrowed by him for purchase of shares is disallowed by the Assessing Officer. In the appeal filed by him against the assessment order, the first appellate authority reversed the order of the assessing authority by applying the decision of the Supreme Court reported in CIT Vs. Rajendra Prasad Moody [1978] 115 ITR 519. The Revenue took up the matter in second appeal before the Income-tax Appellate Tribunal, hereinafter called as the Tribunal in short. The Tribunal reversed the decision of the first appellate authority and restored the order of the assessing authority. Being aggrieved by the same, the assessee is before us by filing this appeal framing substantial questions of law and urged the grounds in support of the same. Smt. Anuradha, learned counsel for the appellant relied upon the deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me earned by the appellant. The assessing authority considered the decision in Rajendra Prasad Moody's case [1978] 115 ITR 519 (SC) relied upon by the learned counsel and held that it is not applicable to the fact situation. The reasons assigned for such a conclusion in the assessment order are extracted hereunder: The decision is with reference to deduction allowable under section 57(iii) of the Income-tax Act. The decision relates to an assessment year where dividend income was taxable in the hands of the assessee. With the introduction of section 10(33) of the Income-tax Act from the assessment year 1998-99 the position of law in regard to taxability of dividends has been changed since such income becomes a part of income which do not form a part of total income of the assessee. The provisions of section 14A introduced by the Finance Act, 2001, with effect from April 1, 1962, retrospectively bars allowing any expenditure in respect of income which is not includible in the total income. Considering this change in the position of law the decision of the Supreme Court relied upon by the assessee does not apply to the assessee's case. Therefore, the divid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tments by utilising the borrowed funds ill the form of acquisition of shares in the company and the only benefit the assessee got was dividend income of ₹ 3 lakhs. Since section 14A of the Act bars any deduction pertaining to any expenditure incurred by the assessee for earning any income which did not form part of the total income, the Assessing Officer disallowed the claim to deduction of interest. The Commissioner (Appeals) confirmed the assessment. The Tribunal allowed the claim but made a disallowance of ₹ 2 lakhs being the interest stated to be attributable to the dividend income of ₹ 3 lakhs earned by the assessee from the leasing company during the previous year. On appeal: Held, allowing the appeal, that any expenditure incurred for earning any income which was not taxable under the Act was not an allowable expenditure. Dividend income was exempt under section 10(33) of the Act and the dividend earned by the assessee on the shares acquired by her with the borrowed funds did not constitute part of the total income in the hands of the assessee. The reasoning given by the Tribunal for disallowance of ₹ 2 lakhs, i.e., by applying section 14A, squa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actual evidence is replaced by statutory presumption and the Assessing Officer has to follow the consequences stated in the statute. It means that even in a case where no expenditure is stated to have been incurred, the assessing authority has to apply Rule 8D. As the statutory presumption substitutes the requirement of factual evidence, the question of enquiry does not arise. Therefore, we are unable to agree with the argument of the learned CA. 7. In result, this appeal filed by the assessee is dismissed. 8.4 In the case of Coal India Ltd. v. Addl. CIT in I.T.A. No. 1032/Kol/2012 1238/Kol/2012 for the assessment year 2008-09 vide order dated 13.05.2015, the Kolkata Bench of the Tribunal has held as under: 5. We have heard the rival contentions and perused the facts of the case. The ld. AR has strongly argued that no satisfaction as to the correctness of the claim made u/s 14A read with 8D(iii) has been recorded by the AO as well as the ld. CIT(A). The aforesaid contention of the assessee is not acceptable for the reasons hereinafter. The order passed by the AO goes to show that AO has complied with the requirement of section 14A of the Act by observing that as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee may be relatable partly to the exempt income and partly to the taxable income. In the absence of S. 14A, the expenditure incurred in respect of exempt income was being claimed against taxable income. The mandate of S. 14A is clear. It desires to curb the practice to claim deduction of expenses incurred in relation to exempt income against taxable income and at the same time avail the tax incentive by way of exemption of exempt income without making any apportionment of expenses incurred in relation to exempt income. The basic reason for insertion of s. 14A is that certain incomes are not includible while computing total income as these are exempt under certain provisions of the Act. In the past, there have been cases in which deduction has been sought in respect of such incomes which in effect would mean that tax incentives to certain incomes was being used to reduce the tax payable on the non-exempt income by debiting the expenses, incurred to earn the exempt income, against taxable income. The basic principle of taxation is to tax the net income, i.e., gross income minus the expenditure. On the same analogy the exemption is also in respect of net income. Expenses allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment proceedings, the AO noticed that the assessee had earned dividend of ₹ 4,85,24,362 which was exempt from tax. Taking note of s. 14A of the IT Act, he called upon the assessee to furnish the details of expenditure incurred in earning the aforesaid dividend and also to explain as to why expenditure on pro rata basis should not be apportioned to the earning of the aforesaid dividend. In reply, the assessee submitted before the AO that it had not incurred any expenditure in earning the aforesaid dividend and hence the prorate basis could not be applied to allocate the expenditure for earning the said dividend. In the absence of details, the AO applied pro rata basis for allocating the total expenditure of ₹ 90,64,63,336 between exempt income (i e., dividend) and non-exempt income in the ratio of the receipts (total receipts being ₹ 119,48,19,592 including dividend receipts of ₹ 4,85,24,362). In this manner, he quantified the expenditure at ₹ 3,68,02,411 being 4.06 per cent of total expenditure as having been incurred in relation to earning the dividend and therefore disallowed the same while computing non-exempt income. On appeal, the learned CIT(A),b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... positions: one, in view of s. 14A inserted in the IT Act with retrospective effect from 1st April, 1962, pro rata expenses on account of interest relatable to investment in shares for earning exempt income from dividend are to be disallowed against taxable income and only the net dividend income is to be allowed exemption after deducting the expenses; and two, the expression expenditure incurred by the assessee in relation to income which does not form part of the total income in s. 14A has to be given a wider meaning and would include both direct and indirect relationship between expenditure and exempt income. Following the decision of the Hon'ble Supreme Court in CI Tvs. United General Trust Ltd. (1994) 116 CTR (SC) 194 : (1993) 200 ITR 488 (SC), the Calcutta Bench of the Tribunal has also held that the interest paid by the assessee being attributable to the money borrowed for the purpose of making the investment which yielded the dividend and other expenses incurred in connection with or for making or earning the dividend income can be regarded as expenditure incurred in relation to dividend income. In Everplus Securities Finance Ltd. vs. Dy. CIT (2006) 102 TTJ (Del) 120, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Hon'ble Bombay High Court in CIT vs. United General Trust (P) Ltd. (supra), wherein the question was as under: Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in applying the decision of the Bombay High Court in the case of CIT vs. New Great Insurance Co. Ltd. (1973) 90 ITR 348 (Born) to the assessment year in question without considering the effect of the amendment operative from 1stApril, 1968, and in thus holding that the assessee would be entitled to the deduction under s. 80M on the gross dividend before deduction of the proportionate management expenses ? Thus, when the decision of the Hon'ble Bombay High Court has been reversed, the proportionate management expenses are required to be deducted while computing the dividend income. In the decision of the Hon'ble Calcutta High Court, relied upon by the learned counsel for the assessee, Mr. Dastur, in the case of CIT vs. United Collieries Ltd. (supra), it has been held that if the facts of a particular case so warrant, the allocation can be made towards expenses. In view of the aforementioned discussion and keeping in view the submissions of the learned De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessee. The assessee has submitted that for disallowing the expenditure incurred for earning the exempt income there must be a nexus between the two. To substantiate the same, the assessee has relied upon the decisions of various courts listed as under: (i) Balram Chinni Mills Ltd. Vs DCIT in ITA NO.504/Kol/2011 (ii) CIT vs Hero Cyccles Ltd. 323 ITR 518 (Pun Har) (iii) Saurabh Agrotech (P) Ltd vs DCIT in ITA No.786/JP/2011 (iv) Hindusthan paper Corporation Ltd. In ITA No.47/Kol/2012. The aforesaid judgements will not support the case of the assessee as the same are rendered in the different facts altogether. In the aforesaid decisions, the ratio was that only those expenditures which has nexus to the exempt income are to be disallowed. However in the present case the nexus between the expenditure incurred and the dividend income was established by the revenue authorities. 5.7. The ld. AR submitted that in subsequent years i.e. A.Yrs. 2009- 10 and 2010-11, the aforesaid issue has been decided in favour of the assessee. The aforesaid orders of the ld. CIT(A) will not help the assessee as the same has no bearing on the present case. 5.8. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal. We have actually gone through the reasons advanced by the assessee. The reasons advanced by the assessee for delay in filing the appeal is too general and is not convincing. The delay cannot be condoned simply because the assessee s case is hard and calls for sympathy or merely out of benevolence to the party seeking relief. In granting the indulgence and condoning the delay it must be proved beyond the shadow of doubt that the assessee was diligent and was not guilty of negligence whatsoever. The sufficient cause within the contemplation of the limitation provision must be a cause which is beyond the control of the party invoking the aid of the provisions. Where no negligence, nor inaction, or want of bona fides can be imputed to the assessee a liberal construction of the provisions has to be made in order to advance substantial justice. Seekers of justice must come with clean hands. The reasons advanced by the assessee clearly show that the delay was due to the negligence and inaction on the part of the assessee. The delay could have been avoided by the assessee by the exercise of due care and attention. There exists no sufficient and good reason to condone the delay ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
