TMI Blog2019 (1) TMI 674X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Delhi High Court in ACB INDIA LIMITED (FORMERLY M/S ARYAN COAL BENEFICATIONS (P) LTD. [2015 (4) TMI 224 - DELHI HIGH COURT] has held that while working disallowance u/s 14A read with Rule 8D, only those investment which has resulted into exempt income during the year are required to be considered. Addition u/s 14A computation - Held that:- AO is directed to decide the issue of disallowance u/s 14A read with Rule 8D afresh in accordance with law. In view of above facts and decision of Honourable Delhi High court in ACB Investments P Ltd [2015 (4) TMI 224 - DELHI HIGH COURT] it is further held that the ld Assessing Officer is directed to examine the certificate issued by a Chartered Accountant working out disallowance u/s 14A. If the ld Assessing Officer finds the disallowance worked out by the assessee as per that certificate as correct then disallowance u/s 14A may be restricted to that extent. If the same is found to be incorrect the ld Assessing Officer may decide the issue of the disallowance afresh in accordance with the law. Penalty u/s 271(1)(c) - Disallowance u/s 14A - Held that:- The fact shows that in assessee’s own case for assessment year 2011 – 12, the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ejected the computation of disallowable amount offered by the assessee, the A.O. has no discretion but to apply rule 8D(2)(iii) as the words used in section 14(2) are the A.O shall determine and the word shall does not leave any discretion, whatever be the result, of application of rule 8D(2)(iii)? 3. The brief facts of the case for AY 2008-09 are that the assessee is engaged in the business of trading of power and coal and generation of power. Assessee company filed its return of income on 30.09.2008 showing income of ₹ 174438856/-. The assessee earned dividend income of ₹ 253850000/- and has investment of ₹ 13263.35 million in shares and mutual funds. The ld AO noted that dividend income does not form part of the total income and assessee did not attribute any disallowance u/s 14A of the Act. The assessee was asked to give details of expenses disallowable u/s 14A of the Act. The assessee submitted that Rule 8D cannot be applied as exempt income is earned from mutual funds and share under the portfolio management scheme. It was further stated that their cost and charges are not debited in general expenditure but are already accounted in exempt income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Accountant to show the amount of disallowance on proportionate basis. His other argument was that while working out the disallowance u/s 14A read with Rule 8D only that investment are required to be considered from which exempt income is earned. He also relied upon several judicial precedents on this aspect and lead decision is of the Honorable Delhi high court in case of ACB India Limited V ACIT dated 8/4/2015 6. The ld DR vehemently submitted that Rule 8D is mandatory from Assessment Year 2008-09 onwards and law does not provide any exclusion while making computation of disallowance. He further referred to the assessment order to show that proper satisfaction is recorded by AO. He therefore, supported the order of the lower authorities. 7. We have carefully considered the rival contentions and also perused the orders of the lower authorities. Admittedly, during the year the assessee has earned ₹ 25.38 crores as exempt dividend income and no disallowance u/s 14A of the Act was made. Therefore, on being questioned, assessee submitted that expenses have been incurred are debited to the mutual fund income. On careful reading of the balance sheet of the company (Schedule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ized the books of accounts of the assesse and specially the aspect of expenses incurred by the assesse with respect to the exempt income of ₹ 25,38,50,000/-. We state as under: - 1. The exempt dividend income is mostly earned from mutual funds. The dividend is credited in the bank accounts of assesse when the assesse gets the redemption of the investment. 2. The company has a strict and well defined investment policy which has been approved by the Board of Directors and there has been no deviation from the said investment policy. 3. As per investment policy of the Company, the company invests surplus funds from time to time in Debt Mutual Funds and the dividend is earned from Debt Mutual Funds. 4. From the records of the company, during FY 2007-08, Sh. Sanjay Kapoor working in capacity of Executive Assistant in the Finance Department of company was completely involved in day to day activity of managing investments in liquid funds. This involved making investments, taking redemption, preparing charts of inflow and outflow of funds and posting the entries in books of accounts. 5. Sh Sanjay Kapoor was reporting for his day to day activities to Sh. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lhi High Court, it is further held that only those investments which has earned exempt income during the year are required to be considered for the purposes of working disallowance u/s 14A read with Rule 8D. In view of the above facts, respectfully following the decision of the Hon'ble Delhi High Court and submission of the additional evidence by the assessee, we set aside the whole issue back to the file of the ld AO with a direction to the assessee to substantiate before the ld AO about the actual expenditure incurred by it towards earning exempt income. The ld AO may verify it along with the certificate of the Chartered Accountant with various record examined by the CA. After examination, ld AO is directed to decide the issue of disallowance u/s 14A read with Rule 8D afresh in accordance with law. In view of above facts and decision of Honourable Delhi High court in ACB Investments P Ltd (Supra), it is further held that the ld Assessing Officer is directed to examine the certificate issued by a Chartered Accountant working out disallowance u/s 14A of the Act. If the ld Assessing Officer finds the disallowance worked out by the assessee as per that certificate as correct then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 5 4940363 / over and above the disallowance offered by the assessee of INR 170,000. Assessee preferred appeal before the learned CIT A, who confirmed that the assessing officer has correctly recorded the satisfaction about the incorrectness of the claim of the assessee. However with respect to the disallowance under section 14 A of the act. He restricted it to INR 42974351/ . He held that assessee himself has stated that a sum of INR 241279/- relates to direct interest expenditure for earning tax-free dividend income and therefore, to that extent the disallowance of direct interest expenditure under rule 8D is to be disallowed. He further upheld the disallowance of INR 42 09/03/2007 to under rule 8D (2) (iii) of the act. Accordingly he upheld the disallowance of INR 42974351/ . The assessee being aggrieved with the order of the learned assessing officer making the disallowance which is partly confirmed by the learned CIT A, has preferred an appeal before us. 12. The learned authorised representative has reiterated his submission which are made for the assessment year 2008 09 and also submitted additional evidence in the form of certificate of a CA working out the disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax act wherein the assessee himself has stated that total expenditure in relation to exempt income comes to INR 3044955/-. The certificate of the chartered accountant also shows the direct expenditure of INR 320064 and indirect expenses of INR 2724891/ . In view of this we direct the learned assessing officer to examine the claim of the assessee based on the certificate of the chartered accountant. If the assessing officer is satisfied with the correctness of the claim the disallowance should be restricted to that extent. If the AO is not satisfied with the correctness of the claim of the assessee then he may apply the rule 8D of the income tax rules 1962. However, while applying the rule 8D of the income tax rules. The learned AO must consider only those investments which have yielded exempt income. Accordingly, we set aside the whole issue back to the file of the learned assessing officer with a direction to the assessee to substantiate its claim that only INR 3044955/ is disallowable under section 14 A of the income tax act as certified by the chartered accountant. The learned assessing officer is directed to examine this claim of the assessee and then, decide the whole iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r orders and the same were never confronted to the assessee. 10. That in any case the view taken by the Ld CIT(A) in earlier years is not a correct view in law and appeals have been filed against the said orders in ITAT by the assessee. 11. The AO and CIT(A) have erred on facts and in law in upholding the levy of interest u/s 234D against the assessee. The charging of interest is illegal, bad in law and without jurisdiction. 17. Though in appeal memo the assessee has raised 11 grounds of appeal, However, all the grounds are related to the disallowance under section 14 A of the income tax act confirmed by the learned CIT(A). Brief facts of the case shows that the assessee filed its return of income on 24/9/2010 declaring total income of INR 947670950/ . The assessee during the year earned dividend income of INR 235150000 on its investment and the total amount of investment in shares and mutual fund was INR 8,377,050,000. In the computation of the total income the assessee has disallowed INR 960,000 on account of expenses attributable to exempt income under section 14 A of the act on pro rata basis. The learned assessing officer questioned the amount disallowed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of additional evidence the working of the disallowance made by the chartered accountant of INR 1969940 where the direct expenditure of INR 508367 and indirect expenditure of INR 1461572 was worked out. As per the certificate of the chartered accountant, it was stated that the exempt income is only INR 23 5150 000 which is 24.81% of the returned income and therefore the total indirect expenses are required to be disallowed in that proportion which is worked out at INR 1461572/ . It was further stated that the chartered accountant has worked out the disallowance from the records of the company. He therefore submitted that the disallowance cannot exceed the above amount, which is actual expenditure incurred by the assessee. 19. The learned departmental representative reiterated the submissions made before us for assessment year 2008 09 and vehemently supported that the learned assessing officer has correctly recorded the satisfaction that the claim made by the assessee of not incurring any expenditure is incorrect. 20. We have carefully considered the rival contention and perused the orders of the lower authorities. It is apparent that during the course of assessment proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eted the penalty holding that appellant has furnished an explanation which is satisfactory and facts are not doubted. He further stated that the issue of disallowance under section 14 A, being a debatable matter, the provisions of section 271 (1)(c) of the Act are not attracted in the case. He further stated that there is no deliberate furnishing of inaccurate particulars of or concealment of the income. He passed in order deleting the above penalty vide order dated 14/10/2016, which is under challenge by the revenue before us. The revenue has raised the solitary ground of appeal as under:- 1. In the facts and circumstances of the case, the ld CIT(A) erred in deleting the penalty levied by the AO u/s 271(1)(c) amounting to ₹ 1,46,56,380/- ignoring the fact that the assessee had made wrong claim for deduction under the provisions of Income Tax Act, 1961. 23. The learned authorised representative submitted that assessee has furnished the correct particulars of the income and disclosed all the material facts available before the learned assessing officer and therefore the penalty under section 271 (1)(c) of the Income Tax Act levied by the learned assessing officer is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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