TMI Blog2016 (10) TMI 1021X X X X Extracts X X X X X X X X Extracts X X X X ..... of appeal raised in ITA No. 2397/Del/2014 for the assessment year 2009-10, are as under: i. That the order of the learned Commissioner of Income Tax (Appeals) is against facts and law. ii. That the learned Commissioner of Income Tax (Appeals) is not justified in confirming the addition of ₹ 8,72,79,000/- being alleged expenses incurred in earning exempt income under section 14A of the Income-tax Act, 1961 as against the disallowance of ₹ 38,00,216/- made by the appellant in computing the normal income. iii. That the learned Commissioner of Income Tax (Appeals) is not justified in confirming the addition of ₹ 8,72,79,000/- being alleged expenses incurred in earning exempt income under Section 14A of the Income-tax Act, 1961 as against the disallowance of ₹ 38,00,216/- made by the Appellant in computing the Book Profit under Section 115JB of the Income-tax Act, 1961. iv. That further grounds shall be submitted at the time of hearing. 3. Grounds of appeal raised in ITA No. 2398/Del/2014 for assessment year 2010-11 are as under: i. That the order of the learned Commissioner of Income Tax (Appeals) is against the facts and law. ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come. The disallowance made by the assessee is not sufficient and not based on any proper and acceptable computation as no detail was furnished in this regard. In view of the above, expenses attributable to income not forming part of total income is computed as under as per envisions of Rule 3D of the Income Tax Act, (a) Direct expenses Nil (b) Interest expenses not attributable to any Specific income or receipt Nil (c) 0.5% of average investment income from which Does not or shall not form part of total income. Rs.1663.56 + 1827.59 = 3491.15 Rs.(1745.58*0.5%) Rs.8,72,79,000/- 4.2 Thus, disallowance u/s 14A of the Act is worked out at ₹ 8,72,79,000/-. However, since assessee itself has disallowed an amount of ₹ 38,00,216/- in its computation, the net disallowance of ₹ 8,34,78,784/- i.e. (Rs.8,72,79,000 38,00,216) is being made and added to the assessee s total income as well as book profit computed u/s 115JB of the Income Tax Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dividend is credited electronically. Out of four employees expenses of two employees along with allocated overheads have been identified and disallowed as a part of earning tax free income. This amount works out to ₹ 38,00,216/- which is reflected in the Tax Audit Report. The working of the same was filed during the course of assessment proceedings and is mentioned in Para (13.1) of assessee s submissions which is duly recorded on page 12 again in Para (4) on page 20 of the assessment order which is as under:- Name EMP No. Salary PF Total Other Benefit s Grand Total R K Gupta 15075 1080085 70226 1150311 230062 1380373 Anil Dudeja 00052 575227 33616 608843 121769 730612 Total 1656312 103842 175915 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are similar to the earlier years. 6. Past History i) Similar addition was made in assessment year 2008-09 and the Hon ble ITAT vide its order dated 30th September, 2015 in ITA No. 5577/Del/ 2011 considered the above facts and recorded finding in Para (10.6) and (11) as undergo. 10.6 In view of the above facts and the position of the law we are of the view that the disallowance made by the AO and as confirmed by the CIT (A) by invoking the provisions of Rule 8D is not sustainable and accordingly the addition made by the AO on this account is directed to be deleted. Ground No. 2 is allowed. 11. Ground No. 3 4 are regarding addition of Rs. made by the AO while computing book profit under section 115JB of the Income-tax Act. In view of our decision regarding no. 2 whereby we have upheld the disallowance under section 14A of ₹ 20,81,729/- made by the assessee as against ₹ 9,74,22,250/- computed by the AO by invoking Rule 8D these grounds become consequential in nature. The AO is directed to restrict the disallowance while computing book profit under section 115JB to ₹ 20,81,729/- as computed by the assessee. These grounds of appeal are according ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invoked provisions of Rule 8D and in terms of clause 8(2)(iii) has - computed 0.5% of the average investments, an amount of ₹ 9,74,22,250/- and after giving credit of the amount disallowance by the assessee ₹ 20,81,729/- further made a disallowance of ₹ 9,53,90,521/-. 10.1 Now the issue is as to whether the AO was justified in invoking the provisions of Rule 8D. On going through the facts of the case we note that the assessee has computed an amount of ₹ 20,81,729/-. This figure has also been certified by the tax auditor in its tax audit report which reads as under:- In our opinion and in accordance to the information and explanation given to us direct and indirect expenses of ₹ 20,81,729/- has been incurred in relation to income being exempted u/s and 10(34) of the Income Tax Act, 1961 (i.e. interest on tax free Securitized Bond/Loan and Dividend). 10.2 The AO has rejected the same on the ground that there would have been certain expenditure towards administrative establishment for proper accounting of these investments and income there on. There cannot be any quarrel with this proposition but the moot question is whether the amount co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idend of ₹ 5.39 Crores but this dividend amount has been received from two companies, namely Powerlink Transmission Ltd. ₹ 4.19Crores and ₹ 1.20 Crores from PTC India Ltd. From the annual accounts of the assessee company we note that there is no change in the investments in these two companies during the year, investments in the Powerlink Transmission Ltd. in the preceding year were ₹ 229.32 Crores which continued at ₹ 229.32 Croresduring the year. Similarly in PTC India Ltd. the investment in the preceding year was ₹ 12 Crores which continued at ₹ 12 Crores during the year under consideration. The dividend received from these two companies has been credited to the bank account. Thus the exempt income received by the assessee company during the year is by way of tax free interest on the bonds and dividend from these two companies. As regards the investments we note from the Annua accounts that there is a small addition by way of further contribution to existing trade investments. It is not a case where there are regular activities in respect of investments or income which is tax free. Assessee Company is not engaged in investment activ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where addition made on this account have been deleted. As rightly contended by the learned AR, Rule 8D is not automatic. The AO has to give a cogent reason taking into account the accounts of the assessee for rejecting the explanation of the assessee and thereafter only he can apply Rule 8D. In the present case, from the facts stated hereinabove, it is quite clear that firstly the AO has not given any reason nor he has considered the accounts of the assessee for recording its satisfaction and secondly the AO has not been able to point out the insufficiency in the disallowance computed by the assessee. The assessee having computed the disallowance, it was incumbent on the AO to bring material to discredit the computation done by the assessee so as to demonstrate that the administrative expenses incurred for earning the exempt income are far more than the amount computed by the assessee. It is a settled position of law that for invoking Rule 8D the AO has to give cogent reasons. It is not by simply stating that he is not satisfied by the explanation given by the assessee that the AO can invoke Rule 8D. 10.4 The Hon ble jurisdictional Delhi High Court had occasion to consider th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction under Rule 8D of the Rules. In the case of Kalyani Steel Ltd. vs. ACIT, ITA No. 1733/PN/2012, dt. 30.01.2014 a similar issue has come up whereby the ITAT, Pune Bench has held as under- 10. In the aforesaid background, now, we may examine the facts of the present case. In this case, assessee has earned by way of dividends a sum of ₹ 5,45,58,685/-,which is exempt u/s 10(38) of the Act and thus the same does not form part of the total income under the Act. In the computation of income, assessee having regard to section 14A of the Act, determined the amount of expenditure incurred in relation to such income at ₹ 5,00,000/-. The Assessing Officer has not found it acceptable and has instead determined the amount of expenditure in relation to such income by applying rule 8D of the Rules. Ostensibly, the action of the Assessing Officer cannot be upheld unless he has complied with the pre-requisite of invoking rule 8D of the Rules, namely, recording of an objective satisfaction with regard to the claim of the assessee that an expenditure of ₹ 5,00,000/- has been incurred in relation to the exempt income, is incorrect. In order to examine the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Rule 8D. The A.O. did not record as to how the explanation submitted by assessee was not satisfactory. The A.O. should have examined the claim of assessee and then he should have recorded his satisfaction as to why the reply of assessee was unsatisfactory. Therefore, respectfully following the order of Hon'ble High Court in the se of Taikisha Engineering India Ltd. (supra), we delete the disallowance confirmed by Ld. CIT(A). 10.5 The Bangalore Bench of the ITAT in the case of Chaitanya Properties Pvt. Ltd. vs. JCIT (OSD) ITA No. 52/Bang/2013, S.P. NO. 148/Bang/2014, ITA No. 125/Bang/2013 dated 27.03.2015 had occasion to consider a similar issue with reference to judgment of the jurisdictional Delhi High Court in the case of Maxopp Investments Ltd. vs. CIT [2011 (11) TMI 267 - Delhi High Court] and has held as under:- The Hon'ble Delhi High Court in the case of Maxopp Investments Ltd. V. CIT [2011 (11) TMI 267 - Delhi High Court] has held that by virtue of the provisions of sub-section (2) and (3) of Section 14A of the Act, if the Assessing Officer is not satisfied by the correctness of the claim of the assessee in respect of such expenditure or no expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved from two companies, namely Powerlink Transmission Ltd. ₹ 4.19Crores and ₹ 1,20 Crores from PTC India Ltd. From the annual accounts of the assessee company we note that there is no change in the investments in these two companies during the year. Investments in the Powerlink Transmission Ltd. in the preceding year were ₹ 229.32 Crores which continued at ₹ 229.32 Crores during the year. Similarly in PTC India Ltd. the investment in the preceding year was ₹ 12 Crores which continued at ₹ 12 Crores during the year under consideration. The dividend received from these two companies has been credited to the bank account. 5. Considering that it is not case where regular activities were undertaken by the Assessee in respect of the investments to earn income therefrom, there was no basis for the AO to hold that the expenditure as disclosed by the Assessee towards earning exempt income was insufficient. The Court finds no legal infirmity in the impugned order of the ITAT. No substantial question of law arises for consideration. 6. Accordingly, the appeal is dismissed. 6.5 Hence, respectfully following the above findings of ITAT and the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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