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TMI Blog2017 (12) TMI 1328X X X X Extracts X X X X X X X X Extracts X X X X ..... 16/Kol/2015 Assessment Year 2008-09), are as follows: "1. That on the facts and in the circumstances of the case, Ld. CIT(A) has erred in deleting disallowance of expenses of Rs. 25,51,838/- u/s 14A of the l. T. Act, 1961 read with Rule 8D of l. T. Rule 1962 in respect of exempted dividend income. 2. That on the facts and the circumstances of the case, Ld. CIT(A) has erred in deleting disallowance of expenses of Rs. 1,03,67,798/- u/s 14A of the l. T. Act 1961 read with rule 8D(2)(ii) of the l.T Rule 1962 in respect of exempted agricultural income. 3. That on the facts and the circumstances of the case, Ld. CIT(A) has erred in deleting disallowance of expenses of Rs. 20,20,841/- u/s 14A of the l.T. Act 1961 read with Rule 8D(2)(iii) of the l. T. Rule 1962 in respect of exempted agricultural income. 4. That the assessee craves for leave to add, delete or modify any of the grounds of appeal before or at the time of hearing." 5. The first issue raised by the Revenue relates to disallowance of expenses of Rs. 25,51,838/- u/s 14A of the Income Tax Act, 1961 r.w.r 8D of I.T. Rules 1962 in respect of exempted dividend income. 5.1The brief facts qua the issue are that the fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18,59,321/-............(b) Disallowance as per rule 8D(2)(iii) The assessee had computed the disallowance as per rule 8D(2)(iii) atRs.2,52,537/-. The computation was not found to be correct. The correct amountof disallowance was recomputed as under:- 0.5% of Average Value of investment = 0.5% of Rs. 13,83,96,277/- = Rs.6,91,981/-................(c) Therefore, AO computed the total disallowance[(a) + (b) + (c)] at Rs. Rs.25,51,838/-. However, the assessee had disallowed suo moto at Rs. 7,74,043/-. 5.2 Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before the CIT(A), who has allowed the appeal of the assessee. The CIT(A) observed that the assessee, during the assessment year under consideration was engaged in the business of cultivation of sugarcane, manufacturing of sugar and trading in fans & other electrical appliances. The assessee maintains separate set of brooks of its three business divisions: (i) Agricultural Division, (ii) Sugar Division & (iii) Market Division. The assessee also maintains separate accounts for its corporate head office. The CIT(A) noted thatall the separate set of books of accounts are duly audited by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly ignored the explanation stating that the submissionswas untenable in law and unacceptable. There is a lack of recording of objective satisfaction on the part of the AO before making further disallowance u/s 14A of the Act. The jurisdictional Calcutta High Court in the case of CIT Vs REI Agro Limited (GA 3022 of 2013) dated 16 12.2013, has affirmed the order of the lTAT, Kolkata stating that in absence of any proper and objective satisfaction being recorded by the AO in the assessment order, the AO's action of making disallowance under Section 14A by applying Rule 8D is bad in law. This proposition is further supported by them decisions of ITAT, Kolkata in the case of ACIT Vs Champion Commercial Limited (lTA No. 644/Kol/2012) and ITAT, Pune in the case of Kalyani Steels Limited Vs Addl. CIT(lTA No. 1733/Pn/2012. Following the binding precedent of the Hon'ble Calcutta High Court and the foregoing decisions of the Hon'ble Tribunal, the CIT(A) held that the further disallowance of Rs. 25,51,838/- made by the AO under Section 14A of theAct was bad in law and deserves to be deleted and therefore, CIT(A) deleted the addition. 5.3 Not being satisfied with the order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jective satisfaction being recorded by the AO in the assessment order, the AO's action of making disallowance under Section 14A by applying Rule 8D is bad in law. This judgment also explains that the disallowance under Rule 8D(2)(ii) should be in respect of the investments which yielded exempt income. Respectfully, following the judgment of the jurisdictional Calcutta High Court, Kolkata, we find no infirmity in the order passed by the ld. CIT(A). Therefore, we confirm the order passed by the ld. CIT(A). 5.7 In the result, the appeal filed by the Revenue (in Ground No.1 of ITA No.1216/kol/2015 & 1217/kol/2015), is dismissed. 6. Ground No.2 and 3 raised by the Revenue relate to disallowance under rule 8D(2)(ii) and 8D(2)(iii) in respect of exempted agricultural income of Rs. 1,03,67,798/- and Rs. 20,20,841/- respectively. 6.1The brief facts qua the issue are that during the assessment proceedings, the AO noted, in the computation of total income, that the assessee has claimed exemption u/s. 10(1) on account of agricultural income. However, no expenditure incurred in relation to agricultural income had been offered as disallowance u/s.14A. The assessee was asked to show cause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stof Rs. 2,30,39,541/- which is indirectly attributable to the earning of tax exempt agriculture income was computed by AO as under : Interest (as discussed above) Rs. 2,30,39,541/- .... (A) Investment in agriculture division as on 01.04.2007 Rs.39,94,11,260/- Investment in agriculture division as on 31.03.2008 Rs.40,89,25,106/- Total - Rs.80,83,36,366/- Average value of investment Rs.40,41,68,183/- ..... (B) Value of assets (as per B/S) as on 01.04.2007 Rs. 86,02,71,056/- Value of assets (as per B/S) as on 31.03.2008 Rs. 94,65,06,232/- Total - Rs.180,67,77,288/- Average value of total assets Rs.90,33,88,644/- ..... (C) Thus, disallowance as per rule 8D(2)(ii) = (A) x (B)/ (C) = Rs.1,03,67,793/-...................(b) Disallowance as per rule 8D(2)(iii) 0.5% of Average Value of Investment = 0.5% of Rs. 40,41,68,183/- = Rs.20,20,841/-........... (c) Thus total disallowance computed by AO, u/s. 14A read with rule 8D[(a) + (b) + (c)]was at Rs. 4,43,02,551/-. 6.2Aggrieved by the order of the AO, the assessee filed an appeal before the CIT(A) who has deleted the addition made by AO. The CIT(A) observed that the assessee was engaged in cultivation of agric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the provisions of law. The income of Rs. 78,24,364/- was computed which included the net profit before tax of all the divisions, which is given below for ready reference. i. Corporate Office : Rs. 9,06,975/- ii. Sugar Division (Loss) : Rs.5,94,93,867/- iii. Agricultural Division : Rs. 88,40,807/- iv. Marketing Division : Rs.4,24,17,170/- : Rs. 78,24,364/- As per audited Divisional Profit &Loss Account, the net profit of the Agricultural Division of Rs. 88,40,807/- is after deducting the total expenses of Rs. 3,19,13,917/-and depreciation of Rs. 2,41,902/- from the gross receipts of Rs. 4,09,95,906/- of the said Division. While computing the income from business, the said net profit from the Agricultural Division has been deducted from the net profit as per the Profit & Loss Account. Therefore, the gross receipts of Rs. 4.09,95,906/- as well asexpenditure of Rs. 3,19,13,917/- of the Agricultural Division have been excluded by the assessee in computing business income. ln other words, the said expenditure of Rs. 3,19,13,917/-, and depreciation of Rs. 2,41,902/-, were not claimed as a deduction by assessee in the computation of business income ..... X X X X Extracts X X X X X X X X Extracts X X X X
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