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TMI Blog2016 (10) TMI 883X X X X Extracts X X X X X X X X Extracts X X X X ..... nd circumstances of the case, the ld. CIT(A) has erred on facts and in law in not fully deleting the disallowance of Rs. 18,48,519/- made by the AO u/s 14A by applying the provisions of Rule 8D and has further erred in sustaining the same to the extent of Rs. 12 lakhs that too without considering the submission and evidences of the assessee." 3. We have heard the arguments of both the sides and carefully perused the relevant material placed on record before us inter alia the assessment order, appellate order and the assessee's paper book spread over 211 pages. The ld. Counsel for the assessee drew our attention towards relevant paras 4.1 to 4.8 of the assessment order and contended that the AO recorded satisfaction on wrong premise and applied Rule 88D of the I.T. Rules, 1962 mechanically without any substantial allegation. The ld. AR further submitted that the CIT(A) in para 3.1.1 noted the facts of the case and thereafter in para 4.1 drew an incorrect conclusion despite the fact that the first appellate authority noted that investment as appearing in the schedule 5 of the balance sheet are joint ventures, the income from which are duly taxable under the Income-tax Act, 1961 [he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the correctness of the disallowance or NIL disallowance made by the assessee, then only, the AO is entitled and authorised to compute deducted u/s 14A r.w.r. 8D of the Rules. In the present case, as noted by the AO in para 4.1, the assessee has not disallowed any expenditure in respect of income which does not form part of total income, thus the present case is pertaining to NIL disallowance by the assessee. In para 4.2, the AO noted that the assessee made investment of Rs. 5357.59 lakhs in equity and preference shares capital of companies, dividend income from which does not or shall not form part of total income and in the subsequent para, the AO, referring to the judgment of the Hon'ble Bombay High Court in the case of Godrej Boyce Mfg, Co. Ltd Vs. DCIT ITA No. 626/10 and W.P. No. 758/10 observed that Rule 8D is constitutionally valid and the AO has to enforce the provisions of sub-section 1 of section 14A of the Act. For this purpose, the AO is duty bound to determine the expenditure which has been incurred in relation to income which does not form part of total income under the Act. These observations of the AO do not state any kind of dissatisfaction regarding correctness ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the beginning and in the end of financial year. Unsecured loans have come down from Rs. 6713.57 lacs as on 31.03.2007 to Rs. Nil as on 31.03.2008. Therefore, it is apparent that there is no new interest bearing secured and unsecured loans during the previous year relevant to AY 2008-09 against the tax free investments made during the relevant period. It is seen that the interest expenditures are incurred on current liabilities of interest bearing mobilization advances taken from clients. The mobilization advances are in turn released to contractors/sub-contractors on interest and such interest income forms part of the total income under the. IT Act. Interest expenditure are also incurred to meet obligation to contractors under arbitration proceeding. There was also sufficient interest free own fund in the form of share no. 2 of appeal is directed against disallowance of Rs. 18,48,519/- made by the AO u/s 14A of the IT Act as the amount of expenditure incurred in relation to earning of exempt income. The appellant has earned dividend on mutual fund/shares of Rs. 2,50,51,655/- and claimed the same as exempt u/s 10(33)/10(34) of IT Act in the computation of income but no disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . in view of the above, no indirect interest expenditures can be disallowed u/s 14A read with rule 8D(2)(ii) on account of the tax free investment. Therefore, the disallowance of indirect interest expenditure of Rs. 5.03 lakhs made by the AO cannot be sustained. The AO has held the amount of expenditure directly related to exempt income as NIL. Therefore, no interference is called for on the account. Considering the administrative and managerial expenses incurred in relation to exempt income, 0.5% of average value of investment which exempt i earned calls for disallowance under rule 8D(2)(ii) of the Rules which works out to Rs. 12 lakhs [0.5% of [4800 +0]/2 = 2400 lakhs]. In view of the above, the total disallowance made by the AO u/s 14A is reduced from Rs. 18.48 lakhs to Rs. 12 lakhs. Therefore, this ground of appeal is partly allowed." 7. In view of the above, we are of the considered opinion that the A.O has not complied with the requirement of section 14A of the Act for making disallowance in this provision. As per sub-section (2) of section 14A of the Act, if the A.O having doubts about the accounts of the assessee is not satisfied with the correctness of the claim of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA No. 1239/Del/2014 8. In this appeal for A.Y 2009-10, the assessee has raised as many as for grounds of appeal. Except for Ground No. 1, al l other grounds are argumentative and supportive to the main Ground No. 1 which reads as under: "1. That having regard to the facts and circumstances of the case, the ld. CIT(A) has erred on facts and in law in not deleting the disallowance made by the AO as prior period expenses on the preliminary ground these were not in fact in the nature of prior period expenses." 9. We have heard the arguments of both the sides and carefully perused the relevant material placed on record before us inter al ia the assessment order, appellate order and the assessee's paper book. The ld. Counsel for the assessee contended that the impugned claim of the assessee was allowed in the earlier and subsequent years and these are actually expenditure which got crystallised during the year under consideration only and thus not prior period expenses and therefore, the AO may kindly be directed to delete the addition. To support this contention, the ld. AR placed reliance on the decision of the Hon'ble Jurisdictional High Court in the case of CIT Vs. Dinesh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mself noted that the assessee has claimed expenses under the head 'prior period expenditure' but this amount is excess of settlement amount with vendors made during hear year and short settlement of claims of income from clients is reflected as negative prior period income. It was also noted by the A.O that since these expenses/incomes are for the projects completed in the past years but were subjected to final payments to be made to the vendor or receivable from clients these difference arose and hence have been accounted for during the current period. The A.O has not controverted the above explanation and submission of the assessee and proceeded to make disallowance and addition by observing that the assessee is maintaining its books of accounts on mercantile basis. Therefore, the expenditure which is neither accrued nor incurred in the previous year relevant to A.Y 2009-10 are not allowable. Accordingly, payments made to the respective vendors in this situation cannot be held that these expenses were not incurred by the assessee during the previous year relevant to A.Y 2009-10. On the basis of foregoing discussion, we are of the considered opinion that the claim of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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