TMI Blog2017 (4) TMI 469X X X X Extracts X X X X X X X X Extracts X X X X ..... utory mandate but contrary to legal principles laid down in the judicial precedents referred to above. In the aforesaid view of the matter, the disallowance made by the AO and partly sustained by the CIT(A) would have no leg to stand. Accordingly, the addition made deserves to be deleted. However, the disallowance made u/s. 14A by the assessee itself is also required to be disallowed while computing the book profit u/s. 115JB in view of the decision of the Tribunal in assessee’s own case for A.Ys. 2005-06 to 2010-11 as referred to above. While deciding the additional ground raised by the assessee in the earlier part of the order, we have deleted the disallowance made by the AO u/s. 14A read with Rule 8D for the reasons discussed therein. That being the case, the issue raised by the department in the present appeal would no more survive. Suffice to say the CIT(A) has deleted the addition made on account of interest expenditure for the reason that the assessee had sufficient interest free surplus fund to make the investment. In fact, the AO himself in assessment order has stated that the assessee had substantial surplus fund available with it. That being the case, the interest exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used the material on record. As could be seen, the issue relating to disallowance of assesee s claim of depreciation on assets acquired on demerger of Godrej Appliance Ltd. is arising from A.Ys. 2003-04 onwards and the matter has travelled upto ITAT. In three separate orders i.e. ITA No. 4538/Mum/2011 Ors dated 31.12.2014 (for A Y 2003-04); ITA 4540/Mum/2011 Ors for AY 2005-06 dated 13.04.2016 and ITA 8488/Mum/2011 (for AY 2008-09) dated 23.08.2016, the Tribunal has upheld the order of the departmental authorities in disallowing assessee s claim of depreciation on assets acquired on demerger. Respectfully, following the consistent view of the Tribunal in assesse s own case for the preceding assessment years, we uphold the decision of the CIT(A) on this issue and dismiss the ground raised by the assessee. 6. In ground nos. 4 to 6, the assessee has challenged disallowance of claim of expenditure on brand improvement. Briefly, the facts are during the assessment proceedings, the AO noticing that payment of professional fees of ₹ 88,93,432/- to Interbrand UK for development of brand, has been claimed as revenue expenditure, called upon the assessee to explain why the expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Appellant. Since the dividend from shares/units of mutual funds is subjected to dividend distribution tax, the appellant submits that relevant income is not tax free and, consequently, the provisions of Section 14A are not attracted. 2.0 The Assessing Officer erred in applying Rule 8D, without recording his satisfaction. 3.0 Without prejudice, and in any event, the Appellant submits that the investments made in shares of its subsidiary/group companies, are strategic investments and the same should not be considered for computing the average value of investments for the purpose of Rule 8D. 4.0 Both the lower authorities erred in holding that disallowance made u/s. 14A of the Act under normal computation of income was also required to be added back for computing book profits u/s. 115JB of the Act. 5.0 Without prejudice, and in any event, the disallowance made u/s. 14A in the computation of book profits requires to be reduced substantially. Since the additional grounds raised by the assessee can be decided on the basis of facts available on record and do not require investigation into fresh facts, we are inclined to admit the additional grounds rais ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iii) Strategic investments made by the assessee for business purpose are to be excluded for computing average investment under Rule 8D(2)(iii). iv) Disallowance made u/s. 14A not to be considered for computation of book profit u/s. 115JB of the Act. 13. The learned DR, on the other hand, relying upon the observations of the AO submitted that the disallowance made by the AO should be restored in its entirety. 14. We have considered the submissions of the parties and perused the material on record in the light of the decisions relied upon. At the outset, we will deal with the first proposition advanced by the learned AR viz. without recording satisfaction with regard to the correctness of asessee s claim in relation to expenditure attributable to earning of exempt income; no disallowance u/s. 14A can be made. It needs to be observed, as per section 14A(1) any expenditure incurred by the assessee for earning income which does not form part of the total income shall not be allowed as deduction. However, as per sub section (2) of section 14A which was introduced in the statute book by Finance Act, 2006 w.e.f. 1.4.2007, before computing the expenditure attributable to e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s if the Assessing Officer is not satisfied with the correctness of the claim of the assessee in respect of the expenditure which the assessee claims to have incurred in relation to income which does not part of the total income. Moreover, the satisfaction of the Assessing Officer has to be arrived at, having regard to the accounts of the assessee. Hence sub-section (2) does not ipso facto enable the Assessing Officer to apply the method prescribed by the rules straightaway without considering whether the claim made by the assessee in respect of the expenditure incurred in relation to income which does not form part of the total income is correct. The Assessing Officer must, in the first instance, determine whether the claim of the assessee in that regard is correct and the determination must be made having regard to the accounts of the assessee. The satisfaction of the Assessing Officer must be arrived at on an objective basis. It is only when the Assessing Officer is not satisfied with the claim of the assessee, that the Legislature directs him to follow the method that may be prescribed. In a situation where the accounts of the assessee furnish an objective basis for the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owance of interest expenditure under Rule 8D(2)(ii) of the Act. However, the learned CIT(A) deleted the disallowance of interest expenditure on the ground that the assessee had surplus interest free fund available with it to make the investment in exempt income earning asset. 17. We have heard the parties and perused the material on record. While deciding the additional ground raised by the assessee in the earlier part of the order, we have deleted the disallowance made by the AO u/s. 14A read with Rule 8D for the reasons discussed therein. That being the case, the issue raised by the department in the present appeal would no more survive. Suffice to say the CIT(A) has deleted the addition made on account of interest expenditure for the reason that the assessee had sufficient interest free surplus fund to make the investment. In fact, the AO himself in assessment order has stated that the assessee had substantial surplus fund available with it. That being the case, the interest expenditure under no circumstances can be disallowed u/s. 14A read with Rule 8D(2)(ii). The ground raised by the department is therefore dismissed. 18. In the result, assessee s appeal is partly allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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