TMI Blog2019 (7) TMI 1267X X X X Extracts X X X X X X X X Extracts X X X X ..... - HELD THAT:- No contrary decision was brought to our knowledge by Learned D. R. against GODREJ AND BOYCE MFG. CO. LTD. VERSUS Dy. CIT [ 2010 (8) TMI 77 - BOMBAY HIGH COURT] which may take a view that the Assessing Officer can compute the disallowance under Rule 8D without recording the non satisfaction about the creditworthiness of the claim of the assessee in respect of the expenditure in relation to the income which does not form part of the total income on the basis of the account of the assessee. - Decided against revenue - ITA No.657 & 658/LKW/2018 - - - Dated:- 19-7-2019 - Shri. A. D. Jain, Vice President And Shri T. S. Kapoor, Accountant Member For the Appellant : Shri S. K. Maduk, CIT (DR) For the Respondent : Shri B. L. Gupta, FCA ORDER PER A. D. JAIN, V.P.: These are Revenue s appeals against the orders of the ld. CIT(A)-II, Kanpur dated 14/8/201 and 16/8/2018 for assessment years 2013-14 and 2014-15 respectively. The Revenue has raised common grounds of appeal, except the difference in amount. However, for the sake of reference, we reproduce the grounds of appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he submissions of the parties, deleted the addition, observing as below:- I have gone through the assessment order on this issue and also perused the written submission made by the Learned .A.R. of the appellant. I find that the AO did not allow additional depreciation should as the CIT(Appeals) had dismissed the appeal of the assessee on the same issue for assessment year 2012-2013. The Ld. A.R. submitted that the Hon'ble ITAT vide his order dated 21.09.2016 (ITA No.419/LKW/2016) allowed the appeal of the assessee of A.Y. 2012-13 in favour of the assessee on this issue vide para No.4 5 of its order. Copy of the Tribunal order is placed on record. AO is directed to follow the directions given in the appellate order for this year as well. In view of the aforesaid, the disallowance of additional depreciation of ₹ 9,57,30,050/- is hereby deleted. 4. Aggrieved, the Revenue is in appeal before us. The ld. D.R. submitted before us that the ld. CIT(A) was not justified to delete the addition of ₹ 9,57,30,050/- made on account of wrong claim of additional depreciation, without appreciating the fact that the provisions as contained in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide its order dated 24/11/2015 by interpreting the provisions of section 32(1)(ii)(a) held as under: 9. The language used in clause (iia) of the said section clearly provides that a further sum equal to 20 per cent. of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii) . The word shall used in the said clause is very significant. The benefit which is to be granted is 20 per cent. additional depreciation. By virtue of the proviso referred to above, only 10 per cent. can be claimed in one year, if plant and machinery is put to use for less than 180 days in the said financial year. This would necessarily mean that the balance 10 per cent. additional deduction can be availed of in the subsequent assessment year, otherwise the very purpose of insertion of clause (iia) would be defeated because it provides for 20 per cent. deduction which shall be allowed. 5.1 No contrary decision was brought to our knowledge by Learned D. R. In view of the aforesaid decision of Hon'ble Karnataka High Court, we set aside the order of CIT(A) and direct the Assessing Officer to allow additional depreciation to the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the previous year, i.e. ₹ 64.46 lakhs (₹ 68.89 + 60.03/2)/2, which comes to ₹ 32,230/-. The A.O, accordingly disallowed a total sum of ₹ 2,22,870/- and added it to the total income of the assessee. 9. Before the ld. CIT(A), the assessee submitted that the AO did not record any specific satisfaction to the effect that the claim of the assessee is not correct or that the assessee has actually incurred some expenditure to earn any exempt income; that he has mechanically proceeded to apply the provisions of Section 14A read with Rule 8D, without rejecting the claim of the assessee; that on similar facts, in the assessee s own case, the ITAT, Lucknow Bench, in ITA No.419/2016, for Assessment Year 2012-2013, directed for deletion of addition made under section 14A of the Act; that in the present case, the total investment as on 31.03.2012 31.03.2013 was ₹ 60.03 Lakhs only, as against the paid up capital reserves owned by the company, of more than ₹ 274.03 Crores; and that on similar facts, the ld. CIT(A), in assessment year 2012-2013, deleted the addition made on account of disallowance under section 14A. He, accordingly, prayed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, no interference is called for in the order of the ld. CIT(A). 13. Heard. We find that the Tribunal has dealt with an identical issue in the assessee s own case for assessment year 2012-13 and placing reliance on various case laws, deleted the disallowance sustained by the ld. CIT(A) under section 14A read with Rule 8D(2)(iii). The relevant portion of the order of the Tribunal is reproduced, as below: 8. We have heard the rival submissions, carefully considered the same along with the orders of the tax authorities below as well as the material available on record and as has been referred during the course of hearing. We noted that this is a case where the Assessing Officer made the disallowance u/s 14A read with Rule 8D while the assessee claims that it has not incurred any expenditure by way of interest or otherwise for earning of exempt income. The assessee claims that it is a case where the Assessing Officer has not recorded any satisfaction as is required as per the provisions of section 14A of the Act. The assessee also claims that no satisfaction has been recorded by the Assessing Officer about the claim of the assessee t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even not shown in the assessee s account has been incurred, he cannot proceed to compute the disallowance as prescribed by the Rule 8D. The condition precedent for the A.O. to embark upon the formula stipulated in Rule 8D in order to compute the amount of expenditure incurred in relation to exempt income, is that the A.O. must record a clear finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure to earn income not includible in total income of the assessee. 7. The assessee s case is that it has not incurred any expenditure to earn income not includible in the total income and so no disallowance u/s 14A of the Act is warranted. As per provision of section 14A of the Act, even if the assessee s claim is that no expenditure has been incurred by him relating to income which does not part of total income, then as per sub-section 3 of section 14A recourse can be taken by the A.O. of sub-section 2 of section 14A and in this case when the assessee assert that no expenditure had been incurred in relation to the earning of exempt income then the A.O. has to record his dissatisfaction in respect to the correctness ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... say that the A.O. has not cited the ITA Number or any citation of the order without which we are unable to take any reliance on the same. However, we have to disagree with the proportion of law as noted by the AO and wherein it is stated that when the tax payer does not offer any disallowance on his own, the provision of section 14A (2) read with Rule 8D can be invoked without there being any need of any express satisfaction about incorrectness of such claim. We must say that the bare reading of section 14A does not support such an interpretation and we are not in agreement with such proposition of law and the order of AO is vitiated on this count. 9. From a bare reading of section 14A of the act, it is clear that before making the disallowance the following conditions need to exist. (i) There must be income taxable under the Act; (ii) The said income must not form part of the total income under the Act; (iii) There must be an expenditure incurred by the assessee; and (iv) The said expenditure must have a relation to the income which does not form part of the total income under the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as may 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.(1). 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. The Tribunal following the decision of the Special Bench in the case of ITO Vs Daga Capital Management (P) Ltd 117 ITD 169 (SB) restored the matter to the file of the AO for the consideration in the light of the provisions of sub-sec.(2) (3) of Sec.14A of the IT Act. The assessee, being aggrieved, filed appeal as well as Writ Petition challenging the constitutional validity of sub-sec. (2) (3) and Rule D. The Hon ble High Court gave the following findings; 1. The provisions of sec. 14A and Rule 8D are constitutionally valid. 2. The provisions of sub-sec. (2) (3) of Sec.14A and Rule 8D are prospective and not retrospective, in nature and therefore, would apply from assessment year 2007-08. 3. The basic object of Sec.14A is to disallow the direct and indirect expenditure incurred in relation to income which does not form part of the total income (page 21). 4. The insertion of sec.14A was curative and declaratory of the intent of the Parliament. The basic principle of taxation is that only net income, namely, gross income minus expenditure that is taxable. Expenses incurred can be allowed only to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecord reasons for his conclusion (page-79). 7. The effect of sec.14A is to widen the theory of the apportionment of expenditure (page 49). 8. The expression expenditure incurred; in Sec.14A 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.14A are intended to enforce and implement the provisions of sub-sec (1) (pages 50). 10. Even in the absence of sub-section (2) of sec.14A the AO would have to apportion the expenditure and to disallow the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. The AO would have to follow a reasonable method of apportioning the expenditure consistent with what the circumstances of the case would warrant and having regard to all relevant facts and circumstances . The said decision of the jurisdictional High Court is binding on us. While deciding this case, the decision of the Hon ble Supreme Court in the case of CIT Vs Wallfort Shares Stock Brokers Ltd., 233 CTR (SC) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under consideration in view of the decision of Special Bench in the case of Cheminvest Ltd. 124 TTJ 577 (Del)(SB). 17. The basic principle of taxation is to tax 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 assessing officer in this case, we noted is not satisfied with the correctness of the disallowance made by the assessee even thou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the sources mentioned therein are deemed to be the expenditure. This in our opinion will strengthen the case of the assessee as Explanation bb to sec. 80HHC does not recognize amount of the investment made in other receipt to be the basis of computing the expenditure being incurred for the earning of that income. Similar views have been taken by Hon ble Tribunal in the following decisions also. In the case of DCIT Vs. Jindal Photo Ltd. held in I.T.A.T. Delhi bench dated 7.1.2011 it was held as follows: Now as per section 14A(2) of the Act, 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 expenditure incurred in relation to income which does not form part of the assessee s total income under the Act, the AO shall determine the amount incurred in relation to such income, in accordance with such method as may be prescribed, i.e., under Rule 8D of the I.T. Rules. However, in the present case, the assessment order does not evince any such satisfaction of the AO regarding the correctness of the claim of the assessee. As such, Rule 8D of the Rules was not ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was held as follows: At the time of hearing, the contention raised by the learned DR in this regard is that the appeal of the Revenue on the issue having been dismissed by the Hon'ble Bombay High Court merely observing that no question arises, it cannot be treated as a decision rendered by the Hon'ble High Court on the merit of the issue which is binding on this Tribunal. We are unable to accept this contention of the learned DR. It is well settled proposition of judicial precedents that is appeal the Hon'ble High Court considers facts pertaining to the issue and gives approval to the decision of the lower forum, the decision of lower forum gets merged with the judgment and order of the High Court and it becomes binding precedent even though approval to decision of lower forum/court is summarily recorded. Similar situation had arisen for consideration before the Hon'ble Gujarat High Court in the case of Nirma Industries Ltd. 283 ITR 402 wherein the effects of summary disposal of appeal by the High Court were analysed and explained by their Lordships. It was clarified that while hearing an appeal even for deciding whether substantial question o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present assessees in as much as the investment made therein was not found to be capable of earning taxable as well as exempt income which was actually not earned by the assessee in the relevant period as are the facts of the present case or that of the case of Delite Enterprise (supra) decided by the Hon'ble Bombay High Court. Accordingly, we decide the common issue involved in all these appeals in favour of the assessees following the decision of jurisdictional High Court in the case of Delite Enterprises (supra) and allow the appeals of all the assessees. 18. We have also gone through the decision relied upon by the learned DR also. The decision of ACIT Vs CITICORP Finance (Ind.) Ltd., 108 ITD 457 (Bom.) is no more relevant, in view of the decision of the Hon ble Mumbai High Court in the case of Godrej Boyce Mfg Co. Ltd. (Supra). The decision of SPIC Vs DCIT 93 TTJ (Chennai) 161 is not applicable to the facts of the case. As in that case, the assessee was regularly investing in the shares. The assessee has not disallowed any expenditure with regard to the earning of the dividend income. Under these facts, the Hon ble ..... X X X X Extracts X X X X X X X X Extracts X X X X
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