TMI Blog2018 (11) TMI 1611X X X X Extracts X X X X X X X X Extracts X X X X ..... essing officer to finalize the assessee s netting computation qua its interest as taxes paid to the department as against interest income of tax refunds as per law. This first substantive ground raised in assessee s appeal is taken as accepted in taxpayer s favour. Addition u/s 14A read with Rule 8D(2)(iii) administrative expenditure - HELD THAT:- The assessee has filed a detailed compilation chart of all the issues raised along with its written submissions therein. We have already narrated the same in foregoing paragraphs. There is no rebuttal at all to above clinching finding of the co-ordinate bench decision, in preceding assessment year. All of its contentions are therefore found to be repetitive of its arguments raised in assessment year 2008-09 which already stand rejected. We thus find no substance in assessee s instant substantive ground therefore. Coming to assessee s legal argument in view of Maxopp investments Ltd. [ 2011 (11) TMI 267 - DELHI HIGH COURT] it transpires that their lordships had decided proportionate interest disallowance issue in relation to exempt income rather than indirect expenditure in the nature of overheads therein. It has already come on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gislature has inserted section 115BBG in the Act vide Finance Act, 2017 w.e.f 01.04.2018. We make it clear that this appeal pertains to assessment year 2009-10 only. This is not the Revenue s case that the above stated legislative amendments carries any retrospective effect. Disallowing commission and directors sitting fee on account of non-deduction of TDS - Addition invoking section 40a(ia) - HELD THAT:- This issue is covered in assessee s favour from preceding assessment years. The Revenue fails to dispute that its very grievance in preceding assessment year 2008-09 (supra) stood declined before this tribunal as well. We therefore adopt judicial consistency to affirm the CIT(Appeals) finding under challenge. The Revenue s instant second substantive ground is rejected. Section 80IA deduction claim allowed - we direct the AO compute the profit eligible for deduction u/s 80IA on the basis of the aforesaid finding given by the Tribunal for A.Y. 2002-03. Deduction u/s 80IC on said unit situated at Haridwar has transferred the goods and services to the business carried on by the assessee and therefore no business is carried on by the impugned undertaking - Deduction has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e denying the impugned netting relief reads as follows: 4.3. I have carefully examined the assessment order, the written submissions and the other material on record. The basic issue involved here is that the AO has denied the claim of the appellant in allowing interest of ₹ 14.09.227/- paid to the Income Tax Authorities to be set off against interest of ₹ 43,12,278/- received from the Income Tax Authorities. The appellant has supported his claim by placing reliance on the decision of the Mumbai Tribunal in DCIT vs. Bank of America NT SA [2011-TII-114-ITATMum-Intl.] wherein on identical facts the set off has been allowed. The AO on the other hand has relied on the subsequent third member decision of the Pune Tribunal in the case of DCIT vs. Sandvik Asia Ltd. [133 ITD 126 (Pune-TM)(2011)], where it was held that such adjustment was not possible. 4.4. The judicial pronouncement relied upon by the appellant has been overruled in the case of Bank of America N.A., Mumbai vs Department of Income Tax decided on 27th November, 2013. While overruling the pronouncement relied upon by the appellant, the ITAT has stated that the said ruling did not consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id / incurred on Income Tax dues should be adjusted against the interest accrued / received on Income Tax refunds. Ground no. 2 is therefore, dismissed. 3. We have heard rival contentions. There is no dispute between the parties about the two sums involved on interest income on refunds and interest expenditure on income tax. The sole question herein is that of netting of these two figures only. Learned CIT(Appeals) has placed a very strong reliance on this tribunal s order in Bank of America case (supra) for denying, the netting in issue. We find in this factual back drop that the impugned issue is no more res integra as hon ble Bombay high court decision in the said assessee s case hold such a netting to be allowable in DIT (International Taxation) vs. Bank of America NT SA I. T.A No. 177 of 2012 decided on 03.07.2014 vide following detailed discussion: 3. Even with regard to the question No.2 we do not find that it is a substantial question of law. The Tribunal found that the Assessee Bank received interest on refund of taxes paid. It also paid interest on the taxes which were payable. The Assessee sought to set off the interest paid against the inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... qua its interest as taxes paid to the department as against interest income of tax refunds as per law. This first substantive ground raised in assessee s appeal is taken as accepted in taxpayer s favour. 4. Next comes assessee s second substantive ground seeking to delete section 14A read with Rule 8D(2)(iii) administrative expenditure of ₹ 12,47,65,000/- @ 0.5% of the average value of investments coming to ₹ 2495.30 crores as against its suo moto disallowance of ₹ 43,59,012/-. The assessee s exempt income derived from its investments in tax free funds, shares, mutual fund reads a sum of ₹ 208,93,24,198/-. We deem it appropriate at this stage to reproduce the ld. CIT(Appeals) findings under challenge as follows: 6.3. At the outset, I observe that this is a recurring issue is the case of the appellant. Though the issue has been similar in earlier years, the law governing the issue has changed substantially from the assessment year 2008-09 with the introduction of Rule 8D in the Income Tax Rules, 1962. Hence the only relevant year in terms of precedence is the assessment year 2008-09 in which while adjudicating on the similar issue, my ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld not exceed total cost incurred by the treasury ventical of ₹ 2,06,05,347/- i.e. by not apportioning salary (an in turn overheads) of its treasury figures. Case Law M/s Maruti Traders Investors vs. ACIT I.T.A. No. 2204/Kol/2016 dated 11.04.2018 is quoted in support for contending that it is incumbent for the assessing authority to verify assessee s accounts in order to ascertain the correct amount of section 14A read with Rule 8D disallowance. 7. The Revenue on the other hand places strong reliance on both the lower authorities action disallowing the administrative expenses in issue. 8. We have heard rival contentions. We first of all wish to reiterate that the assessee has admittedly derived exempt income of ₹ 2089324198/- from bonds, shares and mutual funds. Learned CIT(appeals) has admittedly adopted judicial consistency in following his order for immediate preceding assessment year whilst affirming the impugned disallowance. The assessee had preferred I.T.A. No. 1339/ Kol/2012 in the said immediate preceding assessment year. A co-ordinate bench order dated 12.09.2014 reported as [2015] 57 taxman.com 192 (Kol-Trib) upheld the identi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as made ad hoc disallowance. The disallowance was based on certain principles. The AO without recording any cogent reason for the disallowance of the claim just applied Rule 8D while the Assessee has not incurred any direct expenditure for earning of the dividend. Reliance was placed on the following decision: i) Maxopp Investment Ltd. v. CIT [2012] 347 ITR 272/[2011] 203 Taxman 364/15 taxmann.com 390 (Delhi) ii) CIT v . REI Agro Ltd. (ITAT 161 of2013) Calcutta High Court decision dated 23-12-2013 iii) Cellica Developers (P) Ltd. v. Dy. CIT [2014] 63 SOT 255/45 taxmann.com 367 (Kol.) iv) Asstt. CIT v. Champion Commercial Co. Ltd. [2012] 139 ITD 108126 taxmann.com 342 (Kol.) v) REI Agro Ltd. v. Dy. CIT [2013] 144 ITD 141/ 35 taxmann.com 404 (Kol.) vi) Raj Shipping Agencies Ltd.. v. Asstt. CIT [2014] 146 ITD 277/[2013] 38 taxmann.com 345 (Mum.) The disallowance of the expenditure u/s 14A r.w.r 8D requires proximate relationship with the tax exempt income. The disallowance is simply based on presumptions, surmises and conjectures and should not be sustained. Reliance was placed in this regard o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be prescribed. Such power is to be exercised if the AO having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of the expenditure mentioned in sub-sec. (I). Before applying Rule 8D, it is apparent that the AO must be satisfied with the correctness of the claim of the assessee having regard to the accounts of the assessee. Such satisfaction is an objective satisfaction that it has to be judicious and based on the material on record. It cannot be an impression that it is much more than the gossip or hearsay, it means judgment or belief that it is a belief or a connection resulting from what one thinks on a particular question. It must be based on the reasons and ground as seems good to him and while making such satisfaction, the AO must give regard to the accounts of the assessee. He must record deficiency in the accounts with regards to the claim of the assessee. Sub-sec. (3) provides that provisions of sub-sec. (2) shall also apply where assessee claims that no expenditure had been incurred in relation to income not forming part of the total income. This is not the case of the assessee as in the case of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r which administrative, managerial and establishment expenses are incurred. The Assessee has to identify these expenses on the basis of the accounts maintained by the Assessee. In the absence of separate details or the accounts and taking account of the volume of investment activity, the AO took the view that the disallowance made by the Assessee u/s l4A does not have any relation with the accounts and therefore the Assessee was not correct in computing the disallowance. The AO, therefore, applied Rule 8D and computed the disallowance under Rule 8D(2)(iii). 7.3.2 The Id. AR before us vehemently relied on the decision in Walfort Share Stock Brokers (P.) Ltd. (supra).In this decision we noted that the Hon'ble Supreme Court in that case upheld the view of the Hon'ble Mumbai High Court in the case of Walfort Shares Stock Brokers Ltd. v. ITO [2009] 310 ITR 421 . The Hon'ble Supreme Court in this decision, at page-31 of the order held as under : To attract Sec. l44' there has to be proximate cause for disallowance which has its relationship with the tax exempt. Pay back or return of investment is not such proximate cause. Hence, Sec. 14A is not ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O 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 AO to arrive at a satisfaction in regard to the correctness of the claim of the assessee of the expenditure which has been incurred in relation to income which does not form part of the total income, there would be no warrant for taking recourse to the method prescribed by the rules. For, it is only in the event of the AO not being so satisfied that recourse to the prescribed method is mandated by law (pages 31-32). 6. In the event that the AO is not satisfied with the correctness of the claim made by the assessee, he must record reasons for his conclusion (page-79). 7. The effect of sec. l4,A is to widen the theory of the apportionment of expenditure (page 49). 8. The expression expenditure incurred; in Sec.l4A refers to expenditure on rent, taxes, salaries, interest, etc., in respect of which allowances are provided for (page-50). 9. Sub-sections (2) (3) of Sec. l4A are intended to enforce and implement the provisions of sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x the net income. On the same analogy, the exemption is also to be allowed on net basis i.e. gross receipts minus related expenses. Therefore, if any expenditure is directly related to exempted income, it cannot be allowed to be set off against taxable profit. On the same analogy, in our opinion, if any expenditure is directly related to taxable income, it cannot be allowed to be set off against the exempted income merely because some incidental benefit has arisen towards exempted income. Before making any disallowance u/s 14A, the AO is required to record a satisfaction, having regard to the accounts of the assessee, that claim of assessee that expenditure incurred is not related to the income forming part of the total income is incorrect. Such satisfaction must be arrived at on the objective basis. He is also required to record the reasons for arriving at such satisfaction. The AO, in the impugned case, we noted has categorically recorded that he is not satisfied with the correctness of the disallowance made by the Assessee with reference to the accounts as the Assessee has not maintained any separate details or accounts in respect of the incurrence of expenditure. The AO rejecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me when an explanation is called for by the AO as to how he has computed the disallowance and how he has worked out the proximate relationship of the expenses with the total expenditure incurred by him with the investment made. Once the Assessee has submitted the evidences, the onus is on the AO and the AO is duty bound to record the reasons why he is not satisfied with the correctness of the claim of the Assessee in respect of such expenditure in relation to the income. Until and unless the Assessee discharges his primary onus when the AO has asked for it, the onus cannot be shifted on the AO so as to give benefit to the Assessee. Even though the Assessee has submitted before us the working of the apportionment but, as we have observed, we are also not satisfied with the working of the Assessee for the allocation of these expenses with reference to the accounts of the Assessee. It is not in dispute that the Assessee has incurred indirect expenses which has proximate relationship with the exempted income. Thus, in our opinion, this is a case where the AO has duly complied with the requirements of Sec. l4A(2), therefore, the AO was within his jurisdiction to apply Rule 8D. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied with the correctness of the claim of the assessee in respect of such expenditure. Sub-section (3) is nothing but an offshoot of sub-section (2) of section l4A. Sub-section (3) applies to cases where the assessee claims that no expenditure has been incurred in relation to income which does not form part of the total income under the said Act. In other words, sub-section (2) deals with cases where the assessee specifies a positive amount of expenditure in relation to income which does not form part of the total income under the said Act and sub-section (3) applies to cases where the assessee asserts that no expenditure had been incurred in relation to exempt income. In both cases, the Assessing Officer, if satisfied with the correctness of the claim of the assessee in respect of such expenditure or no expenditure, as the case may be, cannot embark upon a determination of the amount of expenditure in accordance with any prescribed method, as mentioned in sub-section (2) of section 144, of the said Act. It is only if the Assessing Officer is not satisfied with the correctness of the claim of the assessee, in both cases, that the Assessing Officer gets jurisdiction to determine the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore he argued that the provisions of Sec. l4A cannot be invoked. On this question, the Tribunal took the view that the provisions of Sec. l4A r.w.r 8D has rightly been invoked. In the case of the Assessee, the Assessee claimed the expenses relatable to the exempt income. Therefore, this decision will not assist the Assessee. 7.3.10 We have also gone through the decision of the Mumbai Tribunal in the Raj Shipping Agencies Ltd. (supra). We noted that in this decision also the Tribunal has categorically taken the view that for invoking provisions of Sec. l4,A satisfaction has to be recorded by the AO with reference to the accounts. Rule 8D cannot be invoked on estimation/presumptive basis. This decision, in our opinion, will also not assist the Assessee as we have already held that in the case of the Assessee, the AO has recorded satisfaction about the incorrectness of the claim of the Assessee. 7.3.11 We have also gone through the decision in Metalman Auto (P.) Ltd. (supra). This decision relates to the A.Y 2004-05 while the provisions of Sec. l4A(2) l4A(3) were inserted by the Finance Act, 2006 w.e.f. 1.4.2007. Therefore, in our opinion, this decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well. 11. Next comes assessee s additional / third substantive ground seeking to claim ESOPs of ₹ 261737836/- to be wholly and exclusively incurred for the purpose of its business. This tribunal s special bench in the case of Biocon Ltd. vs. DCIT [2013] 144 ITD 21(Del) has accepted such a claim qua disallownace between fair market value of shares of ESOP and exercise of the option at the instance of the concerned employees to be allowable revenue expenditure. The assessee s paper book s pages 104, 105, 107,108, 109, 111 and 117 inter alia comprise of the relevant SEBI guidelines, ICAI note, annual report to this effect; respectively. All this indicates that the assessee had not raised impugned ESOP deduction claim owing to complex legal position on the issue since the tribunal varying opinions leading to special bench (supra). Hon ble Gujrat high court decision in CIT vs. Mitesh Impex 270 CTR 66 (Guj) has taken into account NTPC and Goetz (India) Ltd. vs. CIT (2006) 284 ITR 323 (SC) to hold that if a claim which is available in law is not raised either inadvertently or an account of erroneous plea of complex legal position, such a relief cannot be sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. We make it clear that this appeal pertains to assessment year 2009-10 only. This is not the Revenue s case that the above stated legislative amendments carries any retrospective effect. We uphold the CIT(Appeals) finding under challenge in these facts and circumstances therefore. The Revenue fails in its first substantive ground. 15. The Revenue s second substantive ground challenges the CIT(A) order reversing Assessing Officer s action disallowing commission and directors sitting fee on account of non-deduction of TDS. He had invoked section 40a(ia) of the Act to disallow the assessee s claim of ₹ 67,48,288/- in assessment order. The CIT(A) accepts assessee s arguments as follows: Suffice to say, we notice that at the outset that this issue is covered in assessee s favour from preceding assessment years. The Revenue fails to dispute that its very grievance in preceding assessment year 2008-09 (supra) stood declined before this tribunal as well. We therefore adopt judicial consistency to affirm the CIT(Appeals) finding under challenge. The Revenue s instant second substantive ground is rejected. 16. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is captive power plant. Accordingly, the AO recomputed the profit at ₹ 15,69,04,973/-. 4.2 In respect of power undertaking - IV, the AO observed that the undertaking generated steam used for generation of electricity by the captive power undertakings. The AO took the view that the two units are functionally integrated as a single unit so far as generation of steam and electricity and vice versa are concerned. Since the Assessee has artificially bifurcated the two units, therefore, he was of the opinion that no deduction u/s 80IA can be allowed in respect of the steam unit as the Assessee has already claimed deduction for generation of electricity in respect of captive power undertakings. 4.3 In respect of power undertaking - I, Kovai, the AO noted that the Assessee generated 5,43,96,500 units which was transferred at the rate of ₹ 4.10 per unit and while calculating the transfer price, the Assessee has not considered the Electricity Duty paid to the State Government even though the Assessee has paid a sum of ₹ 9.90 lakhs in connection with the aforesaid undertaking. The AO, therefore, re-determined the cost and computed the profit at ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Tribunal which had held the deduction under section 80IA was applicable on the value of steam used for captive consumption. The appellant company has also submitted that it is a separate / independent undertaking which produces power in the form of steam and which is transferred to other undertakings at market value for captive use. This was supported by the audited statutory Form 10CCB report which lists out all aspects related to the said independent undertaking like date of commencement, statutory inspection/clearances, statement of costs, fixed assets, profit loss a/c and balances sheet and the process flow chart. I also find that in respect of the said facts, the Assessing Officer has accepted the position and had not made any issue. Further, the market value of steam had been properly determined based on a market value report by Price Waterhouse Co. This market value was separately taken as cost as per section 80IA(8) for the computation of deduction for the electricity undertakings. Therefore, there was no case of double deduction. Therefore, in view of the above discussion and finding, I hold that the deduction is fully available to the appellant company in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordance with the guidelines by APSEB is the most reasonable and scientific way to derive the market price. This rate worked out to ₹ 4.45 per unit. The Ld CTT(A) had further reduced this rate by deleting the surcharge and additional duty and worked out the unit rate at ₹ 4.368 which has also been accepted by the assessee. In view of the clear findings by the CIT(A) and the decision of the Supreme Court and the Mumbai Tribunal we are of the view that the decision of the CIT(A) is correct and there is no infirmity in the said decision. Hence this ground of the Revenue is also dismissed. From the said finding of the Tribunal it is apparent that the Assessee has computed the profit for claiming deduction by taking tariff rate @ ₹ 4.45/unit as per the policy of APSEB. This rate of APSEB contains fixed charges which are not directly relatable to the captive plant. CIT(A) reduced this rate by deleting the surcharge and additional duty and worked out the unit rate @ ₹ 4.368. The Tribunal, therefore, confirmed the market rate/unit on the basis of the policy of APSEB as reduced by the surcharge, additional duty. Thus in view of the decision of this Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had not carried out by the designated division of the Assessee. The assessee has not included in the credit side of the profit and loss account any profit while deduction has been claimed on the notional profit. The assessee went in appeal before the ld. CIT(A). ld. CIT(A) deleted the disallowance. 5.1. The ld. DR relied on the order of the AO while the assessee contended that the allegations are similar to the disallowance made u/s 80IA, this issue has been decided in favour of the assessee in assessee s own case for assessment year 2002-03 to 200405 and now it is squarely covered in favour of the assessee by its own case for assessment year 2007-08 by the order of this Tribunal wherein it has been held that the respondent is eligible for deduction u/s 80IC for its captive undertaking located at Uttaranchal. 5.2. We heard the rival submissions and carefully considered the same. We have also gone through the order of the tax authorities below. We noted that the AO has disallowed the deduction u/s 80IC on the basis that the said unit situated at Haridwar has transferred the goods and services to the business carried on by the assessee and therefore no busines ..... X X X X Extracts X X X X X X X X Extracts X X X X
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