TMI Blog2017 (8) TMI 1181X X X X Extracts X X X X X X X X Extracts X X X X ..... MEMBER For The Appellant : Sh. F. R. Meena, Sr. DR For The Respondent : Sh. Mukul Bagla, CA ORDER PER SUCHITRA KAMBLE, JM This appeal is filed by the Revenue against the order dated 25/06/2014 passed by the CIT(A) II, New Delhi for Assessment Year 2010-11. 2. The grounds of appeal are as under:- 1. 1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of Rs.. 16,69,884/- made by the Assessing Officer u/s 14A of the Act, holding that Rule 8D(2)(ii) can be invoked only when the assesse has incurred expenditure by way of interest which is not directly attributable to any particular income or receipt, which is not the case here. 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance by not appreciating the provisions of sub-rule 2 of rule 8D r.w.s. 14A of the I.T. Act, 1961. 3. On the cast and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of ₹ 48,12,352/- on account of disallowance of royalty expenses by treating the same as revenue expenditure. 4. On the fact and circum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cal collaboration and license agreement entered between the assessee company and Tokai Kogyo Co. Ltd. The Assessing Officer further held that as per the agreement, the payment made was in lieu of technical assistance being provided to the assessee which included training and education, technical know-how on the production method which was an enduring benefit derived by the assessee company. In view of this, the Assessing Officer held that entire expenses could not be treated as revenue expenditure as held by Hon ble Supreme Court s decision in the case of Southern Switchgear Co. Ltd. Vs CIT (232) ITR 259 wherein it was held that 25% of the expenses towards payment of royalty is to be treated as capital expenditure. Accordingly, the expenses of 25% of ₹ 1,92,49,406/- amounting to ₹ 48,12,352/- were disallowed and added back to the total income of the assessee. 4. The CIT(A) partly allowed the appeal of the assessee. In respect of disallowance under Section 14A read with Rule 8D(2)(ii), the CIT(A) held as under:- 3.1. While passing the impugned order, the AO noted that the appellant had earned exempt income of ₹ 12,17,836 during the relevant year, but had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the instant case, the AR has demonstrated through the bank statement that mutual fund investments, from which the appellant has earned exempt income, were made in January and February, 2008 out of the funds received on public issue of shares in January, 2008 and the interest bearing funds were used for acquiring fixed assets and for working capital. 3.4.4 This conclusion was made by the AO also while passing the assessment order for AY 09-10, where the disallowance u/s 14A was limited to that made under rule 8D(2)(iii) only. No new finding has been recorded by the AO while passing the impugned order so as to upset the one made in AY 09- 10. Rule 8D(2)(ii) can be invoked only when the assessee has incurred expenditure by way of interest which is not directly attributable to any particular income or receipt, which is not the case here. Hence, no disallowance is warranted under Rule 8D(2)(ii). 3.4.5. However, disallowance under Rule 8D(2)(iii), which has been accepted by the appellant in AY 09- 10 and in the year under consideration, stands at a different footing since it provides for apportionment on the basis of average value of investment in case of indirect expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Ground 3 of the appeal is allowed. 5. The Ld. DR relied upon the order of the Assessing Officer and submitted that during the year under consideration assessee made investment of ₹ 20,97,00,616/- as on 31.03.2010 and shown dividend income of ₹ 12,17,836/-. The Ld. DR further submits that the expenses need not be directly attributable to the tax free income. Thus, the Assessing Officer rightly disallowed ₹ 16,68,884 under Rule 8D(2)(ii). As relates to Ground no. 3 and 4, the DR could not distinguish the facts of the present assessment year and the earlier assessment years where the ITAT has decided the issue of royalty expenses in favour of the assessee. 6. The Ld. DR relied upon the order of the CIT(A). 7. We have heard both the parties and perused all the material available on records. The Assessing Officer and the CIT(A) has not given a particular finding about the investments. The CIT(A) has only made observation that the conclusion made by the AO while passing the assessment order for AY 09-10, where the disallowance u/s 14A was limited to that made under rule 8D(2)(iii) only and there was no new finding recorded by the AO while passing the pres ..... X X X X Extracts X X X X X X X X Extracts X X X X
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