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2014 (8) TMI 1183

amine such expenses as above amounts to failure to examine the applicability of provisions of section 14A and has rendered the assessment erroneous and prejudicial to the interests of revenue - HELD THAT:- The total transport and handling charges appears in the accounts is inclusive of transport and service charges. The total handling charges appearing on expenditure side is the actual sum paid to various contractors (After considering the TDS). Thus, there is a direct nexus of expenditure incurred and income reflected in the accounts. Since this activity pertains to taxable income, the expenditure was deducted from transport and handling receipt. The expenditure and handling charges do not pertained to deriving any of the exempted income. The various working submitted during the course of assessment have been verified by the concerned assessing Officer at relevant point of time and there is nothing on record to conclude that handling charges pertains to income from exempt activities as well as taxable activities. AO has passed the order after applying his mind to the facts of the case. In such a situation, the order of Assessing Officer cannot be said to be erroneous so as to prej .....

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work out direct expenses related to exempted income as provided in Rule 8D(2)(i) of Income Tax Rules, 1962. 3. As a result of the failure of the Assessing Officer to apportion the direct expense amongst exempt and taxable income, thereby allowing excess exemption u/s.10(29) of the Act, the order passed by the Assessing Officer for A.Y. 2002-03 was found erroneous so as to prejudicial to the interests of revenue. The assessee was accordingly asked vide notice dated 02.02.2011 to explain as to why a revision order u/s.263 of the Act should not be passed revising the order passed by the Assessing Officer u/s.143(3) r.w.s. 254 of the Act dated 14.12.2009 as discussed above. 4. In response to notice of hearing, the learned Authorized Representative on behalf of the assessee had made submissions before the CIT, which read as under: The handling charges of ₹ 17,30,89,840/- are directly related to the income from taxable activity of ₹ 18,58,63,814/-. We are enclosing herewith the chart submitted during the course of fresh assessment passed in pursuance to ITAT s order. From the perusal of this working it may please be observed that the taxable income of ₹ 18,58,63,814/- p .....

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handling charges do not pertained to deriving any of the exempted income. The various working submitted during the course of assessment have been verified by the Assessing Officer and there is nothing to conclude that handling charges of ₹ 17,30,89,840/- pertains to income from exempt activities as well as taxable activities. There is no material on records to come to such conclusion and even on facts and circumstances prevailing in the case these expenses pertain to earning of taxable income only. The assessee has filed the appeal u/s.260A to Bombay High Court for A.Y. 2002-03 vide lodging No.1082/2009, inter alia challenging the fact that the provisions of sec.10(29) fall in Chapter III of the Act which speaks about Incomes which do not form part of the total income while Sec.14A though inserted by Finance Act, 2001, effective from 1-04-62 falls in Chapter IV of the Act, which speaks about Heads of Income . The provisions of Sec.14A start with the word For the purpose of computing total income under this Chapter . Chapter III commencing with the words In computing the total income of the previous year of any person, any income falling within any of the following clauses sh .....

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epresentative has supported the order passed u/s.263 by the CIT. 6. After going through the rival submissions and material on record, we find that original return was filed u/s.139 of the Act on 30.10.2002 on which original assessment u/s.143(3) was passed on 31.01.2005 determining the taxable income of ₹ 5,90,35,236/- wherein exemption u/s.10(29) of the Act was allowed on income from warehousing & fumigation amounting to ₹ 5,41,41,410/- and the remaining business income & income from other sources was brought to tax. The matter was carried before first appellate authority, wherein the various contentions were raised on behalf of the assessee and having considered the same, the CIT(A) upheld the computation of business income. In second appeal, the Tribunal had set aside the assessment order and restored it back to the Assessing Officer with a direction to re-compute denovo the income. For the sake of convenience, the relevant portion of ITAT order is reproduced hereunder: 6. Now the situation is that neither before the A.O nor before the CIT(A) Rule 8D was placed which provides method for determining amount of expenditure in relation to income not included in t .....

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g Officer has allowed the same after considering all the facts and circumstances of the case. He has applied his mind after verifying the required details and hence the same cannot be said to be erroneous and prejudicial to the interests of revenue. The Hon ble Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd. vs. Deputy Commissioner of Income-tax (2010) 328 ITR 81 (Bom) held that the provisions of Rule 8D did not have application for A.Y. 2002-03 because the same has no retrospective, they apply prospectively i.e. w.e.f. A.Y. 2008-09. The total transport and handling charges appears in the accounts is ₹ 18,58,63,814/- is inclusive of transport and service charges. The total handling charges appearing on expenditure side of ₹ 17,30,89,840 is the actual sum paid to various contractors (After considering the TDS). Thus, there is a direct nexus of expenditure incurred and income reflected in the accounts. Since this activity pertains to taxable income, the expenditure was deducted from transport and handling receipt. The expenditure and handling charges do not pertained to deriving any of the exempted income. The various working submitted during the course of .....

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