TMI Blog2010 (12) TMI 1234X X X X Extracts X X X X X X X X Extracts X X X X ..... shares. The learned CIT(A) erred in not upholding the ratio of the decisions cited and relied upon by the Appellant for the same. 3.1. Facts in brief as emerged from the corresponding assessment order passed u/s.143(3) of the I.T. Act, 1961 dated 30/03/2005 were that the assessee-company is engaged in manufacturing and marketing of chemicals, intermediates required for pesticides, pharmaceuticals, dyes, etc. During the year under consideration, assessee has received dividend of ₹ 4,36,085/- which was claimed as exempt u/s.10(33) of the I.T.Act. It has also been noted by the Assessing Officer that the amount of investment at the start of the year as opening balance was at ₹ 1,49,65,160/- and that investment had gone down to ₹ 69,79,999/- at the close of the year. The Assessing Officer has also computed the average of own funds and the borrowed funds out of the total funds available to the assessee during the year. It has also been noted that the own funds and borrowed funds were intricately merged with each other. On that basis he has remarked that though the assessee had sufficient own funds but it could not be presumed that those own funds have been used for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. Muimbai vs. Dy.CIT in Income tax Appeal No.626 of 2010 and Writ Petition No.758 of 2010 order dated 12/08/2010, [now reported as 328 ITR 81(Bom)] and thereupon restoring the matter back to the file of Assessing Officer to decide afresh as per the guidelines of the Hon'ble High Court. For ready reference, we hereby cite one of our decision pronounced in the case of Aditya Medisales Ltd. vs. Dy.CIT bearing ITA No.2143/Ahd/2005 for Assessment Year 2002-03 and ITA No.1117/Ahd/2005 for Assessment Year 2001-02, dated 26/11/2010 as follows:- 5. With this brief background, we have examined the facts of the case as also the law pronounced in this regard. 6. As far as the Assessing Officer s action is concerned, the disallowance has been made on the basis of a calculation of the proportionate interest alleged to be attributable to the investment earning exempted dividend income. It is also to be noted that while doing so for the years under consideration the A.O. has not followed the past method of calculation of the disallowance. As per AO it was seen that the working of disallowance was wrong because while calculating the proportionate interest attributable to dividend incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said exempt income. Rather, the Court was very specific that in case, no such exercise was carried out by the Assessing Officer then the matter is to be remanded back for afresh investigation. It has also been made clear that the proviso to section 14A of the Act was effective from 2001-02. The Hon'ble Court has also pointed out the importance of Rule 8D of the I.T.Rules, 1962. It was made clear that sub-section (1) to section 14A was inserted with retrospective effect from 01/04/1962, however, sub-sections (2) (3) were made applicable with effect from 01/04/2007. The proviso was inserted with retrospective effect from 11/05/2001 , however Rule 8D was inserted by the Income Tax (Fifth Amendment), Rules, 2008 by publication in the Gazette dated 24/03/2008; reproduced below:- a) The ITAT had recorded a finding in the earlier assessments that the investments in shares and mutual funds have been made out of own funds and not out of borrowed funds and that there is no nexus between the investments and the borrowings. However, in none of those decisions was the disallowability of expenses incurred in relation to exempt income earned out of investments made out of own funds cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Act 1961, as was applicable for Assessment Year 2002-03 is not includible in computing the total income of the assessee. Consequently, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to such income which does not form part of the total income under the Act, by virtue of the provisions of Section 14A(1); ii) The payment by a domestic company under Section 115O(1) of additional income tax on profits declared, distributed or paid is a charge on a component of the profits of the company. The company is chargeable to tax on its profits as a distinct taxable entity and it pays tax in discharge of its own liability and not on behalf of or as an agent for its shareholders. In the hands of the shareholder as the recipient of dividend, income by way of dividend does not form part of the total income by virtue of the provisions of Section 10(33). Income from mutual funds stands on the same basis; iii) The provisions of sub sections (2) and (3) of Section 14A of the Income Tax Act 1961 are constitutionally valid; iv) The provisions of Rule 8D of the Income Tax Rules as inserted by the Income Tax (Fifth Amendment) Rules 2008 are not ultra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attention as pronounced in the case of Wal Fort Shares and Stock Brokers Ltd. [2009](310 ITR 421) [Bom]. The observation was that what section 14A of the Act contemplates is the expenditure actually incurred for earning tax-free income and not assumed expenditure or deemed expenditure. Therefore confirming the decision of the respected Special Bench { 96 TTJ 673(SB)(Mum.)} an observation was made that there was no merit in the contention that the loss arising from the transaction was liable to be treated as an expenditure incurred for earning the tax free income and hence disallowable under section 14A. Admittedly, no expenditure was incurred in purchasing the dividend bearing units. The Tribunal was justified in holding that the loss arising from the transaction was liable to be set off against the other taxable income of the assessee. While upholding the decision of Hon'ble High Court, the Hon'ble Supreme Court{ CIT vs Walfort Share Stock Brokers 326 ITR pg.1(SC) } has also said that for attracting section 14A of the Act there has to be a proximate cause for disallowance, which is its relationship with the tax exempt income, relevant para from the held portion is as fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, it depends on the facts of each case. But the fact of the present case was that the Assessing Officer had not enquired the issue in the light of the above legal pronouncements. Specially the pronouncement of the Hon'ble Bombay High Court was not available at that time, hence, the Assessing Officer s assessment order was devoid of merits as also applicable law. Now we have got certain guidelines, though can not be said to be exhaustive or complete, but on these lines, the Assessing Officer is expected henceforth to compute the correct disallowance, needless to say after providing an adequate opportunity of hearing to the assessee. 7. In the result both the appeals of the assessee for Assessment Year 2001-02 and 2002-03 being restored for re-adjudications hence to be treated as allowed but for statistical purposes. 7. Therefore after a long discussion it was decided by the respected co-ordinate bench to refer the issue back to assessment stage to decide as per the guidelines of the Hon ble Courts therefore on the same lines we hereby restore the matter back to the file of Assessing Officer. Resultantly,this ground of the assessee is allowed only for statistical p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was not established. In the result the said amount was disallowed. When the matter was carried before the first appellate authority, the action of the Assessing Officer was affirmed. 10. Heard both the sides. Perused the records of the case. Even before us, no convincing material was placed on record to demonstrate the correctness of the claim supported by documentary evidence. For some repair work an advance was alleged to have been made which had no documentary evidence even to establish that it was wholly and exclusively for the purposes of the business, hence for us difficult to accept an uncorroborated claim. As noted above, even the authorities below have not allowed the claim due to lack of evidence. Totality of the facts of the case, thus, warrants to affirm the findings of the authorities below. This ground is dismissed. 11. Ground No.5 reads as under: 5. Re: Disallowance of Staff Welfare Expenses of ₹ 35,000/-. 5.1. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in upholding the disallowance made b yt he Assessing Officer with regard to payments made to a trade union agency for negotiations with its workers. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s.115JB. 6.2. The learned CIT(A) grossly erred in holding that the provision for doubtful debts is a reserve without appreciating that the provision was made in respect of specific debts which were considered as doubtful and the same has also been accepted by the auditors treating it as a provision and not a reserve . 13.1. The assessee has debited a sum of ₹ 63,63,013/- as a provision for doubtful debt. As far as the normal computation of total income was concerned, the assessee has itself added back the same amount. However, the said adjustment was not made while computing the profit under the provisions of section 115JB of the I.T.Act. The Assessing Officer has taken a view that as per the provisions of section 115JB, book profit is to be increased by any provision other than the ascertained liabilities. As per the Assessing Officer, since the said provision was admittedly for a doubtful debts, therefore, it was not an ascertained liability. Resultantly, a computation was made after the adjustment of the said amount. The matter was carried before the first appellate authority, and the action of the Assessing Officer was confirmed. 14. Before us, Learned Aut ..... X X X X Extracts X X X X X X X X Extracts X X X X
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