TMI Blog2012 (4) TMI 731X X X X Extracts X X X X X X X X Extracts X X X X ..... d not out of borrowed funds and, therefore, no interest expenses can be said to have been incurred for earning exempt income. The assessee also submitted that it did not incur any other expenditure to earn exempt income. The AO held that administrative management, recurring or over head expenses are common to earning of income from business as well as income from other sources. The AO also held that the assessee did not discharge its onus of proving that no expenses were incurred in earning exempt income. The AO, therefore, treated 5% of the exempt income as expenses incurred in earning exempt income which resulted in an addition of ₹ 1,85,26,581/- to the total income of the assessee. 3. On appeal by the assessee the CIT(A) found that on an identical issue in A.Y 2001-02 the CIT(A) following the decision of the Special Bench of ITAT in the case of Daga Capital Management 26 SOT 603(Bom) directed the AO to apply Rule 8D of the Income Tax Rules, 1962 and disallow administrative management recurring or overhead expenses accordingly. Following the said order the CIT(A) directed the AO to make disallowance as directed in the said order of CIT(A) for AY 01-02. 4. Agg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001. (Proviso was inserted by F.A. 2002, w.e.f. 3-2-2001) Rule 8-D was enacted by the I.T. (5th Amend.) Rules, 2008, wef. 24-32008, pursuant to the provisions of Sub-Section (2) and it reads as follows: 8D. Method for determining amount of expenditure in relation to income not includible in total income.-(1) Where the Assessing Officer having regard to the accounts of the assessee of the previous year, is not satisfied with- (a) the correctness of the claim of expenditure made by the assessee ; or (b) the claim made by the assessee that no expenditure has been incurred in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). (2) The expenditure in relation to income which does not form part of the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature and have retrospective effect) and remanded the matter to the AO for re-computing the disallowance. The assessee challenged the decision of the Tribunal. HELD: (1) The argument that dividend on shares / units is not tax-free in view of the dividend-distribution tax paid by the payer u/s 115-O is not acceptable because such tax is not paid on behalf of the shareholder but is paid in respect of the payer s own liability; (2) S. 14A supersedes the principle of law that in the case of a composite business expenditure incurred towards tax-free income could not be disallowed and incorporates an implicit theory of apportionment of expenditure between taxable and non-taxable income. Once a proximate cause for disallowance is established which is the relationship of the expenditure with income which does not form part of the total income a disallowance u/s 14A has to be effected; (3) The argument that a literal interpretation of s. 14A leads to absurd consequences is not acceptable. S 14A is founded on a valid rationale that the basic principle of taxation is to tax net income i.e gross income minus expenditure; (4) The argument that the method in Rule 8D r.w.s 14A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al in the present assessment year. We order accordingly and remand the issue to the AO for fresh consideration in the light of the directions given by the Tribunal in A.Y 2001-02 referred to above. 8. Ground No.2 raised by the assessee reads as follows: 2. The CIT(A) erred in ignoring other income and net adjustments in respect of earlier years of ₹ 62,38,200 of the eligible units for the purpose of granting deduction under section 80IA. 9. The assessee claimed deduction under section 80IA of the Act in respect of its Trombay Unit 7, Combined Cycle Power Plant (CCPP). The A.O has allowed deduction under section 801A in respect of the following undertakings: a. Trombay Unit 7 (CCPP) b. 150MW Bhira Unit (BPSU) c. Jojobera 67.5 MW Unit However, for the purpose of granting deduction under Section 801A, the ACIT ignored Other income of ₹ 79,17,985 and net adjustments in respect of earlier years of ₹ 25,57,573 of the eligible units. The details of Other Income and Net adjustments in respect of earlier years considered for computing deduction u/s 8OIA are Trombay Unit 7 Combined Cycle Power Plant, Bhira Pumped Storage Unit and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on maintenance of garden has to be considered as expenditure incurred wholly, necessarily and exclusively for the purpose of business of the assessee. The following are the relevant observation of the Tribunal in this regard. 24. Ground No.2 raised by the Revenue reads as follows: 2.The learned CIT(A) erred in deleting the disallowance of expenditure on maintenance of garden amounted to ₹ 23,98,364/- without appreciating that the expenditure has not been incurred wholly , necessarily and exclusively for the purpose of business. 25. The AO has disallowed an amount of ₹ 23,98,364/- being community welfare expenses on maintenance of gardens on the ground that the expenditure has not been incurred wholly, necessarily and exclusively for the purpose of assessee s business. The assessee submitted that with the present emphasis of the Government on pollution control, the expenditure is necessary as part of the assessee company s community welfare activities. It was further claimed that the expenditure was also incidental to the assessee s main business of generation, transmission and distribution of electricity. The assessee furnished a detailed note to expl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f projects which were shelved during the year ended 31st March, 2001. Shelved Projects Amount (Rs.) ACC-Kymore Power Project 4,58,113 INDAL- Hirakud Power Projects Haryana Vidyut Prasaran 2,20,281 5,00,000 MSEB Power Project POWERGEN 14,66,566 2,74,73,477 Bidding regarding RVPNL Power Project-Jaipur 8,33,333 Bathinda Power Project Oman Power Project 1,49,773 67,130 Hazira Power Projects Study for evaluation of 2 Hydro projects at Zambia 10,078 86,546 100MW CCPP at Thakurli Mini Hydro Plant at Khopoli Total 1,50,889 42,216 3,14,58,402 Further the assessee, under cover of its letter dated 27th November, 2007 had also furnished a memo from Senior General Manager, Projects dated 18th April, 2001 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,18,393 The assessee also furnished statements indicating the break up of the above expenditure under cover of its letter dated 27th November, 2007 and has provided copies of some of the invoices under cover of its letter dated 18th Feb.2008. The above payments have been made to Tata Consulting Engineers (TCE) for various feasibility reports. The assessee has submitted that the above projects are connected with the existing business of the assessee i.e. generation, transmission and distribution of electricity. The expenses have been claimed as revenue expenditure based on the following decisions: 1. Karnataka High Court in the case of CIT vs. Karnataka State Industrial Investment Development Corpn. (163 ITR 657) 2. Kerala High Court in the case of CIT vs. Kerala State Industrial and Investment Development Corporation. (182 ITR 62) 3. Calcutta High Court in the case of Keshoram Industries and Cotton Mills Ltd. vs. CIT (196 ITR 845) 4. Gauhati High Court in the case of Dy. CIT vs. Assam Asbestos Ltd. (263 ITR 357) 5. Calcutta High Court in the case of Asiatic Oxygen Ltd. (190 ITR 328) 32. The AO did not allow the claim of the Assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of interest of ₹ 1 ,48968 is due to the fact that interest on part TDS refund of ₹ 8,27,591 has been granted from October 2004 to February 2005 instead of granting interest from April 2002 to February 2005. The interest on ₹ 8,271591 has been granted from October 2004 since TDS certificates aggregating to ₹ 8,27,591 were filed on 11th October, 2004. 21. The assessee had submitted before CIT(A) that though the TDS claim had been revised, the entire amount had been deducted at source during the financial year ended 31st March, 2002 itself and hence, interest under Section 244A should be grated from April 2002 and not merely from October 2004. It was further submitted that provisions of sub-section (2) of section n 244A cannot be invoked as the proceedings resulting in the refund have not in any way been delayed for reasons attributable to the assessee. It was also been pointed out by the assessee that the assessment order u/s. 143(3) was passed on 24/2/2005 i.e. almost 4 months after additional TDS certificates aggregating to ₹ 8,27,591/- were filed. It was submitted that the correct amount of Interest u/s. 244A should be ₹ 8,68,88,725 an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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