TMI Blog2019 (7) TMI 1859X X X X Extracts X X X X X X X X Extracts X X X X ..... JUDICIAL MEMBER For the Assessee : Shri Mudit Nagpal , Sr. DR For the Revenue : Shri Mehul Talera, AR ORDER PER MADHUMITA ROY- JM: Both the appeals filed by Revenue are directed against the order dated 10.07.2017 passed by the CIT(A)-4, Ahmedabad arising out of the order passed by the AO u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) for Financial Years 2013-14 2014-15 respectively. 2. The order of the Ld. CIT(A) in deleting the addition made by the Ld. AO on account of disallowance under sec. 14A read with Rule 8D of the Act, 1961 has been challenged before us. The brief facts leading to the case this that the assessee being filed his return of income on 27.09.2013 declaring total income at ₹ 28,92,850/- alongwith computation of income, Profit Loss account, Balance Sheet, Tax Audit Report in the form No. 3CB 3CD. Under scrutiny notice was issued under sec. 142(1) of the assessee on 29.05.2015 03.07.2015 alongwith detail questionnaire. 3. Assessee is a builder and developer engaged in the business of real estate also having partnership firms, dividend income as well as salary, interest profit from vari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6/-. The earned profit from those partnership firms is ₹ 1,58,93,427/-. The said profit was claimed as exempt u/s. 10(2A) of the IT Act. Now we are producing the chart showing the profit, interest, remuneration earned from the partnership firm and investment in the partnership firm from whom exempted profit was earn during the year. Opening Balance as On 01/04/2012 Particulars Profit Investment as on 31/03/2013 Interest Income Remuneration Dividend 12,80,78,464 Shaligram Corporation 49,77,717 19,46,78,671 91,44,657 53,28,530 Resham Infrastructure 50,690 53,54,045 1,32,284 -51,62,209 Shaligram Associates 1,01,81,806 96,71,380 50,50,161 Shali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under. 14A. Expenditure incurred in relation to income not includible in total income.-(1) For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. (2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions, of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act: Provided that nothing contained in this section shall empower the Assessing Officer either toreassess under section 147 or pass an order enhancing the assessment or r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alance sheet excluding the increase on account revaluation of assets but including the decrease on account of revaluation of assets.] After reading Sec. 14A and Rule 8D our submission is as under:- As per chart, the appellant has earned interest income ₹ 99,77,423 and interest expenditure ₹ 70,89,595. Net interest income is ₹ 28,87,828. Here there is no expenditure claimed but there is interest income hence disallowance is not possible. Once the interest income was more than the interest expenditure then it was wrong on the part of the AO to invoke the provisions of Rule 8D of the Act. We are relying upon the following decisions:- Safal Reality Pvt. Ltd. v/s. ACIT(OSD), Circle 8, Ahmedabad; ITA No. 2334/Ahd/2012 1842/Ahd/2013. (Pg. No. 67 to 71) Aditya Medisales Limited v/s. ACIT Range 1, Baroda. (Pg. No. 72 to 75) DCIT, Circle-4, Kolkata v/s. M.s. Trade Apartment Ltd. (Pg. No. 76 to 77) Morgan Stanley India Securities v/s. ACIT Circle 1(2), Mumbai (Pg. No. 78 to 82) ITAT Delhi Modern Info Technology Pvt. Ltd. v/s. ITO; ITA No. 4294/Del/2012 (Pg. No. 83 to 86) As per the Rule, as reproduced above, the AO has to determine the disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of such expenditure. Sub-s. (3) is nothing but an offshoot of sub-s. (2) of s. I4A, Sub-s. (3) applies to cases where the assessee claims that no expenditure has been incurred in relation to income which does not form cart of the total income under the Act. In other words, sub-s. (2) deals with cases where the assessee specifies a positive amount of expenditure in relation to income which does not form part of the total income under the Act and sub-5. (3) applies to cases where the assesses asserts that no expenditure had been incurred in relation to exempt income. In both cases, the AO, if satisfied with the correctness of the claim of the assessee in respect of such expenditure or no expenditure, as the case may be, cannot embark upon a determination of the amount of expenditure in accordance with any prescribed method, as mentioned in sub-s. (2) of s. 14A. It is only if the AO is not satisfied with the correctness of the claim of the assessee. in both cases, that the AO gets jurisdiction to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the Act in accordance with the prescribed method, the prescr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the question of determination of such expenditure by the Assessing Officer would arise. The requirement of adopting a specific method of determining such expenditure has been introduced by virtue of sub-section (2) of section 14A. Prior to that, the assessee was free to adopt any reasonable and acceptable method. So, even for the pre-rule 8D period, whenever the issue of section 14A arises before an Assessing Officer, he has, first of all, to ascertain the correctness of the claim of the assessee in respect of the expenditure incurred in relation to income which does not form part of the total income under the Act. Even where the assessee claims that no expenditure has been incurred in relation to income which does not form part of the total income, the Assessing Officer will have to verity the correctness of such claim. In case, the Assessing Officer is satisfied with the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, the Assessing Officer is to accept the claim of the assessee in so far as the quantum of disallowance under section 14A is concerned. In such eventuality, the Assessing Officer cannot embark upon a determination of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he judgment is applicable only in respect of determination of quantum ofdisallowance. The learned CIT(A) has disallowed the expenditure In the ratio of income not eluded in the total income and the income received from the firm. In the absence of any argument regarding any error in this part of the decision, it is held that he was right in doing so. (Pg.No.87-93) Its our contention that the appellant had major portion interest free fund and that the AO had not established any nexus between the funds invested for earning the interest free income. Further as per chart there is only few fund was invested in the partnership firm during the year.(Opening balance as on 01/04/2012 investment was ₹ 13,32,94,946/- and as on 31/03/2013 ₹ 20,91,89,203/-). Disallowance u/s 14A r.w. Rule 8D - Held that Hon ble Jurisdictional High Court in the case of CIT v. HDFC Bank Ltd. 2014 (8) TMI 119 - BOMBAY HIGH COURT has laid down the proposition that, if the assessee s capital, profits, reserves and surplus and current account deposits are higher than the investments in tax free securities, then it would be presumed that the investments made by the assessee would be out of interest free ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contribution of capital this view has been accepted in the case Asstt. Commissioner of LT. 12(3) Vs. M/s. Novel Enterprises. (pl. see page no. 5 to 7 of the enclosures) Regarding disallowance of ₹ 8,92,513/- u/s 14A r.w. rule 8D(2)(iii). Without prejudice, the disallowance as per third limb as contained in rule 8D(2)(iii) could not have been computed at ₹ 8.92,513/- when the total expenses incurred by the appellant (other than the amount covered by rule 8D(2)(i) 8D(2)(ii)) were to the tune of ₹ 32,235/-(30000+2235) only. Thus the AO erred in disallowing what the appellant has not even claimed. The total expenditure debited under the head Bank Charges. Legal and consultation fees total of Rs, 32,235/-. Thus, the appellant has claimed only a sum of ₹ 32,235/-. It is our submission that certain expenditure is necessary to run the business like Bank Charges. Legal and consultation fees therefore, this expenditure of ₹ 32,235/- claimed was justified. The Assessing Officer mechanically applied the Rule 8D(2)(iii) and calculated the disallowance of ₹ 8,92,513/- which was more than the total expenditure claimed by the assessee. In an alternative submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax Rules 1962, in Rule 8D,-I. for sub-rule (2), the following sub-rule shall be substituted, namely:- (2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, Namely:- (i) The amount of expenditure directly relating to income which does not form part of total income; and (ii) An amount equal to one per cent of the annual average of the monthly averages of the opening and closing balances of the value of investment, income from which does not or shall not form part of total income: Provided that the amount referred to in clause (i) and clause (ii) shall not exceed the total expenditure claimed by the assessee. II. Sub-rule (3) shall be omitted. Hence there is no need to make any disallowance. Therefore, total disallowance of ₹ 58,55,888/- + 8,92,513/- = 67,48,401/- should be deleted. Pl. delete the same and oblige. 6. It is the case of the assessee that the assessee has earned interest income 99,77,425/- and interest expenditure ₹ 70,89,595/- leaving surplus of ₹ 28,87,828/-. Since interest receipts are excess than the expenditure on interest there should not b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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