TMI Blog2020 (12) TMI 1112X X X X Extracts X X X X X X X X Extracts X X X X ..... submission to the AO with the documentary evidence that it has not incurred any expenditure in connection with the exempted income. But, we find that the assessee has not made any submission except disallowing the expenses on estimation basis. As such we find that the AO has derived the satisfaction by recording in the assessment order. ITAT in the own case of the assessee involving identical facts and circumstances has confirmed the disallowance made by the authorities below. Investments were made on the advice of the PMS and for this purpose PMS was compensated by the assessee by way of fees paid to them which has already been disallowed by the assessee. Therefore, further consideration of such investments for the purpose of disallowance of expenses under Section 14A r.w.r. 8D would lead to double disallowance which is unwanted under the provisions of law. Diminution in the value of investments should also be considered while working out the disallowance to be made under the provisions of Section 14A read with Rule 8D of Income Tax Rules. It is because such benefit was extended by the AO in the assessment framed under Section 143(3) of the Act for the Assessment Year 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income Tax Rule. 3. The facts in brief are that the assessee in the present case is a private limited company and engaged in the business of manufacturing of electrical engineering products. The assessee in the year under consideration has shown dividend income of ₹ 55,54,823/- and share of profit from the firm ₹ 1,13,080/- which was claimed as exempted income. The assessee against such exempted income has made Suo-Moto disallowance of the expenses as detailed under: i. Direct expenses paid as portfolio management fees ₹ 3,68,510/- ii. Administrative expenses .5% of the exempted income ₹ 38,696/- (Dividend income+ share of profit+ long-term capital gain) The assessee during the assessment proceedings contended that it had surplus funds available with it, not required for immediate business purposes, which was utilized in the investments. Accordingly, the assessee contended that it has not incurred any expenditure in the earning of such exempted income. 4. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee also contended that the method adopted for the disallowance of the administrative expenses i.e. 0.5% of the dividend income was also accepted by the revenue in the earlier assessment years. 8. The assessee further contended that it has made most of the investments through the involvement of portfolio management services providers which were entrusted with the task of decision-making such as when to invest, where to invest, price at which to invest, when sell off and at what price to sell off. The PMS for such services was paid the fees which has already been disallowed by the assessee. In other words, there was no involvement of any manpower, time devotion of the directors or any other resources of the company in maintaining or making such investments. As such, all the expenses incurred by assessee under the administrative head were incurred for the manufacturing activity of the business. But the assessee as a matter of abundant precaution has made the disallowance of ₹ 38,696/- being 0.5% of the exempted income. Without prejudice to the above, the assessee also contended that at least the investments which were made through the involvement of PMS should be ignor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made as per Rule 8D. Hence it is held that the application of provisions of Rule 8D by the AO is correct. But at the same time, while computing the average investments, the AO is directed to exclude the investments made in foreign subsidiary and debentures as income from these are not exempt from income tax. So far as investment though PMS are concerned, since the dividend income earned on them is exempt, hence appellant s contentions are not accepted and such investments are to be considered for the purposes of Rule 8D. The appellant gets part relief accordingly. 13. Being aggrieved by the order of the Learned CIT (A), the assessee is in appeal before us. 14. The Learned AR before us submitted that the AO has invoked the provisions of Section 14A read with Rule 8D of Income Tax Rule without recording the satisfaction about the incorrectness of the claim of the assessee as provided under Section 14A of the Act. Accordingly, the Learned AR contended that no disallowance can be made without recording such satisfaction. The Learned AR support of his contention has made reference to the following judgments: ITAT order dated 01.08.2018 in ITA No. 1403/A/2014 (By. Ass.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n basis. Thus, in absence of any material by the assessee, we reject the basis adopted by it (the assessee) in making the disallowance under the provisions of section read with Rule 8D of Income Tax Rules. 18. The second question arises whether the AO is under the obligation establish the nexus between the expenditure incurred by the assessee viz a viz the exempted income earned by it. In this connection, we note that, primary onus lies upon the assessee to justify based on the documentary evidence that the expenditure claimed by it were not incurred in connection with the exempted income. In the case on hand, the assessee failed to make any submission about the same. As such the onus shifts from the assessee upon the AO when he makes the submission to the AO with the documentary evidence that it has not incurred any expenditure in connection with the exempted income. But, we find that the assessee has not made any submission except disallowing the expenses on estimation basis. As such we find that the AO has derived the satisfaction by recording in the assessment order as detailed under: This shows that the assessee itself has admitted that some expenditure has been incur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure incurred in that regard. Hence, in our considered opinion, the very basis adopted by the assessee in estimating the amount of expenditure incurred for earning exempt income is faulty. Hence, we do not find any mistake in the satisfaction of the AO that the working of disallowance made by the assessee is not correct. 8. In a situation where the AO has recorded his satisfaction that the working of the assessee regarding expenditure incurred for earning exempt income is not correct, then the same has to be worked out as per Rule 8D of the IT Rules and the AO has worked out the disallowance on the basis of Rule 8D only. We, therefore, do not find any reason to interfere in the order of the learned CIT(A). 9. In the result, the appeal of the assessee is dismissed. 20. It is also important to note that the Ld. AR at the time of hearing cited various orders/judgments as mentioned above, but in our considered view these are distinguishable from the present facts of the case, more particularly, in the existent situation when the ITAT in the own case of assessee, as discussed above, has decided the issue against it (the assessee). Therefore, we are not incline to re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 3,79,633/- (₹ 60,708/- + ₹ 1,79,932/- + ₹ 1,38,993/-) which was adjusted against the short-term capital gain. As per the AO, such short-term capital loss was incurred with respect to the units which were purchased within a period of three months prior to the record date and such units were sold within a period of nine months after such record date. Accordingly, the AO was of the view that such loss cannot be adjusted against the short-term capital gain within the provisions of Section 94(7) of the Act. Accordingly, the AO disallowed the same and added to the total income of the assessee. 27. Aggrieved assessee preferred an appeal to the Learned CIT (A) who confirmed the order of the AO by observing as under: 5.3 I have considered the facts of the case and submission made by the AR of the appellant. The A.O. has analyzed these transactions as per the provisions of section 94(7) of the I.T. Act, 1961 and has given full particulars in his order. These facts have not been claimed to be incorrect by the appellant in its submission. The only submission is that it has not incurred these losses intentionally. But such claim is not relevant for application o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poses of computing his income chargeable to tax.] From the above provision, it is revealed that the short-term capital loss incurred with respect to the units which were purchased within a period of three months prior to the record date and sold within a period of nine months after such record date, shall be ignored to the extent of such loss, not exceeding the amount of dividend income for computing the income chargeable to tax. In view of the above we find no infirmity in the order of the authorities below. Hence, the ground of appeal of the assessee is dismissed. 32. In the result, the appeal filed by the assessee is partly allowed. Coming to other ITA Nos. 133/Ahd/2014, 271/Ahd/2015, 627/Ahd/2016 455/Ahd/2017 (A.Y. 2010-11 to 2013-14):- 33. The issues involved in all these cases are identical to that of the issue already decided by us against the assessee in part in ITA No. 2280/Ahd/2013 for A.Y. 2009-10 and in the absence of any changed circumstances the same shall apply mutatis mutandis to all these appeals. Hence, all these appeals are partly allowed. 34. In the combined result, the appeals filed by the assessee are partly allowed. Order pronounce ..... X X X X Extracts X X X X X X X X Extracts X X X X
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