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TMI Blog2020 (11) TMI 815X X X X Extracts X X X X X X X X Extracts X X X X ..... Lt. CIT(A) is correct by deleting the addition under section 14A read with Rule 8D if Rs. 69,66,774/- out of total addition of Rs. 70,35,166/- by restricting provisions of rule 8D(2) (ii) limited to dividend yielding investment ignoring provisions of circular of CBDT No.5/2014 which clarifies that Rule 8D read with section 14A of the Act provides for disallowance of the expenditure even where taxpayer in a particular year has not earned any exempt income. 3. That the Department craves the leave to addition, alter or modify or rescind the grounds hereinabove before or hearing of this appeal." 2. Ground No.1 relates to deletion of addition under the head of 'Railways Punitive' to the tune of Rs. 5,26,28,266/- treating the same as compensatory in nature and allowable u/s 37 of the Act. At The time of hearing of the matter the ld Counsel appearing for the assessee submitted before us that this issue is covered in assessee's own case for assessment year 2013-14, a copy of the said order passed by the Coordinate Bench in ITA No.1531/Kol/2017 for assessment year 2014-15 dated 05.10.2018 has also been submitted before us. On the other hand, the Ld. DR relied upon the order passed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA No. 847 & 1613/M/2010, which held punitive charges paid by the assesse to railways for overloading of wagon is compensatory in nature and the same cannot be disallowed by invoking the provisions of explanation to section 37(1) of the Act. Relevant portion of his order is reproduced herein below:- " I have considered the finding of the AO on this issue in the assessment order and the submission made by the AR during the appellate proceedings. I find that my predecessor has given a detailed finding on this issue in assessee's group case for assessment year 2008-09 vide his order in appeal no.249/CC-1(3)/CIT(A)- 20/13- 14.dated 1 1-12-2014 which is reproduced as under: I find from the impugned order that the assessee had explained at the assessment stage that the railways punitive charges were not paid for any purpose which was an offence or which was prohibited by law but it was only in the terminology, of the railways that it was called punitive charges. It appears from the material placed on record that due ' to the absence of Weightment Bridge at the loading point, the goods are loaded in railway wagon on the basis of some estimate and the exact weight is measured e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings. The Hon'ble Supreme Court has in the case of Mahalaxmi Sugar Mills CO (1980) 123 ITR 429 laid down the basic principle for deciding as to whether a claim of damages or penalty was allowable u/s. 37(1) : whenever any statutory impost paid by an assessee by way of damages or penalty or interest is claimed as an allowable expenditure u/s. 37(1) of the Income Tax Act, the assessing authority is required to examine the scheme of the provisions of the relevant statute providing for payment of such impost notwithstanding the nomenclature of the impost as given by the statute, to find whether it is compensatory or penal in nature. The authority has to allow deduction u/s. 37(1) of the Income Tax Act whenever such examination reveals the concerned impost to be purely compensatory in nature. " The Hon'ble Supreme Court reiterated the same legal position in the case of Prakash Cotton Mills Pvt. Ltd (1993) 201 ITR 684. In the case of Hero Cycles Ltd 178 Taxman 484, the Hon'ble Punjab & Haryana High Court allowed the deduction of the amount paid to the Electricity Board as penalty for violation of power regulations, ie. Extra charges paid for drawing extra load in peak hours. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he punitive charges paid to the railways for overloading of wagons is compensatory in nature and therefore the provisions contained in Explanation to section 37(1) are not attracted. The Hon'ble ITAT has held that " in the instant case as we have already held earlier that the punitive charges paid by the assesse to Railways for overloading of the wagons is compensatory in nature, therefore, the same cannot be disallowed by invoking the provisions of Explanation to section 37(1) of the Act". In view of the above, I am of the considered opinion that overloading charges irrespective of the nomenclature given by the railways are essentially of commercial nature which cannot be characterized as penalty and that such charges are compensatory in the nature of additional freight for overloading of wagons which is explicitly permitted by the railways and the payments are made in accordance with law as provided by the Notification of the Ministry of Railways. The punitive charges paid to the railways cannot be characterized as expenditure incurred for any purpose which is an offence or which is prohibited by law and therefore the Explanation to section 37(1) is not attracted. In view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ground no. 5 is relating to deletion of addition made on account of disallowance made u/s. 14A r.w. Rule 8D(2)(iii) of Rs. 63,31,460/-. Whether the CIT-A is justified in directing the AO to re-compute the expenses/disallowances U/R 8D(2)(iii) in terms of investment, which yielded exempt income in the facts and circumstances of the case. 17. After hearing both the parties and on perusal of record including the material as available before us, we find that the assessee has not offered any amount towards dividend income earned by the assessee and as such subsection(3) of section 14A r.w.r 8D(3) of the IT Rules, 1962 the AO made disallowance of Rs. 63,31,460/- and added the same to the total income of assessee. The assessee challenged the same before the CIT-A. The CIT-A by placing reliance on an order of Kolkata Bench (ITAT, Kolkata) in the case of REI Agro Ltd reported in (2013) 144 ITD 141 (Kolkata-Trib)/ITA No. 1331/Kol/2011 directed the AO to verify the details of investment and to compute the expenditure accordingly in terms of investment, which yielded exempt income. 18. Before us the ld.AR placed on record the order of Hon'ble High Court of Calcutta in the case of REI Agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if any disallowance is to be made in respect of expenditure incurred, it should be in relation to this dividend income of Rs. 1,32,638/-. If an assessee has invested in shares, which could get dividend or there is investment which generates dividend income or exempt income as also investment which does not generate exempt income, it is only such investments in respect of which the dividend income or exempted income has been earned which can be considered when computing the disallowance under section 14A read with ITA No.1331 & 1423/Kol/2011 Assessment Year: 2008-09 rule 8D. A perusal of the provisions of rule 8D also talks of satisfaction in sub-rule (1). Rule 8D(2) has three sub-parts. The first sub-part i.e. (i) deals with the amount of expenditure directly relating to the income which does not form part of the total income. That issue is not in dispute here and therefore, we do not go into it in this case. In second sub-part i.e.(ii), it is a computation provided in respect of expenditure incurred by the assessee by way of interest during the previous year which is not directly attributable to any particular income or receipt. This clearly means that if there is any interest ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has taken into consideration the investment of Rs. 103 crores made this year, which has not earned any dividend or exempt income. It is only the average of the value of the investment from which the income has been earned which is not falling within the part of the total income that is to be considered. This is why the question of satisfaction is provided in section 14A and rule 8D(1), that relates to the accounts of the assessee. Thus, it is not the total investment at the beginning of the year and at the end of the year, which is to be considered but it is the average of the value of investments which has given rise to the income which does not form part of the total income which is to be considered. A question may arise as to why the term "average of the value of investment" is then used. The term average of the value of investment would be to take care of cases where there is the issue of dividend striping. In any case, as we have already held that the assessee has not incurred any expenditure by way of interest during the previous year, which is not directly attributable to any particular income, the findings of the ld. CIT(A) on the issue stand confirmed and consequently the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome was not exempted income earned during the year and there was no question of disallowance under Rule 8D of the Income Tax Rules, 1962 read with Section 14A of the Act.
Both the Commissioner and the Appellate Tribunal found as a matter of fact that there was no exempt income for the operation of the relevant Rule. In the light of such concurrent findings and, in particular, the Department failing to demonstrate any error therein, no question of law arises in this matter.
ITAT 100 of 2014 and GA 2122 of 2014 are dismissed.
There will be no order as to costs."
8. Considering the ratio laid down by the Hon'ble Jurisdictional High Court in CIT vs. M/s Ashika Global Securities Ltd. in GA 2122 of 2014 and also the judgement passed by the Coordinate Bench and respectfully relying upon the same we find no infirmity in the order passed by the Ld CIT(A) in deleting the addition made under section 14 A r.w.r.8D so as to warrant interference. Hence in the absence of any merit found in the appeal preferred by the revenue, the same is hereby dismissed.
9. In the result, the appeal of the Revenue is dismissed.
Order is pronounced in the open court on 20.11.2020. X X X X Extracts X X X X X X X X Extracts X X X X
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