TMI Blog2018 (9) TMI 1900X X X X Extracts X X X X X X X X Extracts X X X X ..... niyari, Ld. AR For the Respondent : V.K.Chaturvedi, Ld. Sr. DR ORDER Per Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year [AY] 2012-13 contest the order of Ld. Commissioner of Income-Tax (Appeals)-1 [CIT(A)], Mumbai, Appeal No. CIT(A)-I/DCIT-LTU-1/4/2015-16 dated 06/01/2017 qua confirmation of disallowance u/s 14A. The assessment for impugned AY was framed by Ld. Deputy Commissioner of Income Tax-LTU-1, Mumbai [AO] u/s 143(3) of the Income Tax Act, 1961 on 10/03/2015 wherein the income of the assessee has been assessed at ₹ 347.72 Crores under normal provisions after certain adjustments / disallowances as against returned income of ₹ 346.70 Crores e-filed by the assessee on 28/11/2012. The income for the purpose of Minimum Alternative Tax [MAT] u/s 115JB was computed at ₹ 344.94 Crores as against returned income of ₹ 343.92 Crores u/s 115JB. The only issue under appeal is disallowance u/s 14A. During impugned AY, the assessee, being resident corporate assessee, was engaged in the business of Merchant Banking. 2. During assessment proceedings, it was noted that the assessee reflected exempt i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... At the outset, we find it convenient to extract the operative portion of the judgment of this Tribunal rendered in assessee s own case for AYs 2008-09 2009-10 as follows:- 7. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decision are given below. We begin with the contentions of the Ld. counsel that the AO has not recorded the reasons for dissatisfaction of the correctness of the claim of the appellant. In the case of Godrej Boyce Manufacturing Co. Ltd. (supra), the Hon ble Supreme Court held at para 37 : We do not see how in the aforesaid fact situation a different view could have been taken for the Assessment Year 2002-2003. Sub-sections (2) and (3) of Section 14A of the Act read with Rule 8D of the Rules merely prescribe a formula for determination of expenditure incurred in relation to income which does not form part of the total income under the Act in a situation where the Assessing Officer is not satisfied with the claim of the assessee. Whether such determination is to be made on application of the formula prescribed under Rule 8D or in the best judgment of the Assessing Officer, what the law postulate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has claimed entire expenditure incurred from the company as a whole against the remaining first three heads of income as mentioned above. Then the AO observed An important issue which arises is that where four activities are being carried out by the assessee and expenses are incurred in respect of all activities together, whether the expenses relating to each activity should not be matched with the income earned from that activity as per the matching principle of accounting and further where any part of the income is exempt then whether the corresponding matching expenses should not be disallowed u/s 14A or otherwise, if they are not allowable under the head of the income in which the income is being assessed. The accounting conventions and standards postulate that only the expenses relatable to the earning of income should be matched with it. We find in the instant case that the AO, having regard to the accounts of the assessee, as placed before him, has come to a finding that he is not satisfied with the correctness of the appellant s claim of expenditure. Thereafter, he has invoked Rule 8D. This is evident from the relevant paras of the assessment order we have mentione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 1,02,810/- made by the AO under Rule 8D(2)(ii). 7.2 We now turn to the disallowance of ₹ 48,97,979/- made by the AO under Rule 8D(2)(i) and ₹ 73,36,360/- made under Rule 8D(2)(iii). We find merit in the submissions of the Ld. counsel that the expenses allocable to TIG Department are considered by the AO as direct expenditure under Rule 8D(2)(i), whereas the same should have been considered as indirect expenditure under Rule 8D(2)(iii). We are of the considered view that Rule 8D(2)(iii) gives a formula to arrive at the indirect expenditure earned for earning the exempt income. Thus we delete the disallowance of ₹ 48,97,979/- made by the AO under Rule 8D(2)(i). 7.3 Finally we come to the disallowance of ₹ 73,36,360/- made by AO under Rule 8D(2)(iii). We are also of the considered view that strategic investments made by the appellant in its subsidiaries which are capable of yielding exempt income i.e. by way of dividend etc. shall be included while computing disallowance u/s 14A of the Act. The rationale for enactment of section 14A was explained by the Hon ble Bombay High Court in Godrej and Boyce Mfg. Co. Ltd (supra) as under: Section 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it would be difficult to allocate the actual quantum of borrowed funds that have been used for making tax-free investments. It is only the interest on borrowed funds that would be apportioned and the amount of expenditure by way of interest that will be taken excluding any expenditure by way of interest which is directly attributable to any particular income or receipt (for example - any aspect of the assessee's business such as plant/machinery, etc.). As regards rule 8D(2)(iii), it had been submitted that some mechanism or formula had to be adopted for attributing part of the administrative/managerial expenses to tax-exempt investment income. The administrative expenses attributable to tax-free investment income have a fixed component and a variable component. A view was taken that the disallowance should also be linked to the value of the investment rather than the amount of exempt income. Under Portfolio Management Schemes (PMS), the fee charged ranges between 2 and 2.5 per cent of the portfolio value which would be inclusive of a profit element for the portfolio manager. While the fixed administrative expenses were excluded on the ground that in the case of a large corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal in respect of disallowance under Rule 8D(2)(i) and Rule 8D(2)(iii) are allowed, whereas, the appeal under Rule 8D(2)(iii) is allowed for statistical purposes. We find that similar facts and circumstances exist in the impugned AY except for the fact the no disallowance u/r 8D(2)(ii) has been made by the lower authorities. It is further noted that Hon ble Supreme Court in a recent judgment, in group of cases titled as Maxopp Investment Ltd. Vs CIT [12/02/2018 91 Taxmann.com 154], has decided vital issues concerning disallowance u/s 14A, the benefit of which was not available to the lower authorities at the time of adjudicating this issue. Therefore, respectfully following the judgment of co-ordinate bench of this Tribunal in earlier years and in the light of recent judgment by Hon ble Supreme Court, the matter stand remitted back to the file of Ld. AO on similar lines with similar conlcusion. Needless to add that adequate opportunity of being heard shall be provided to the assessee, who, in turn, is directed to substantiate his claim, in this regard, with documentary evidences / suitable explanations etc. 6. Resultantly, the appeal stand allowed for statistical purposes. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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