TMI Blog2021 (10) TMI 1200X X X X Extracts X X X X X X X X Extracts X X X X ..... een incurred to earn dividend income, but not shown. When ld. CIT (A) himself recorded that, it may not be possible to find out the actual expenditure incurred in relation to the earning of exempt income , it is difficult to reject the working brought on record by the assessee too that no expenditure has been incurred to earn dividend income by the assessee. Moreover, the entire investment made by the assessee during the years under assessment is dividend reinvested and in these circumstances, the provisions contained u/s 14A read with Rule 8D cannot be invoked mechanically. In AY 2014-15 also, AO has mechanically applied section 14A read with Rule 8D without recording any dissatisfaction as to the working given by the assessee as to not incurring any expenses to earn the dividend income rather based his findings on the basis of generic observations that such a huge investment cannot be made without incurring expenditure. For AY 2014-15 also, assessee has brought on record fund statement also showing entire investment for the year under assessment as dividend reinvested which ratifies the working given by assessee. By following the law laid down in Godrej Boyce Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... higher education cess is an allowable deduction being not hit by the provisions of section 40(a)(ii) of the Act. - Decided in favour of assessee. - ITA No.1510/Del./2018 And ITA No.5205/Del./2018 - - - Dated:- 22-10-2021 - Shri N.K. Billaiya, Accountant Member And Shri Kuldip Singh, Judicial Member For the Assessee : Shri Ankit Sahni, Advocate For the Revenue : Shri Rajesh Kumar, Senior DR ORDER PER KULDIP SINGH, JUDICIAL MEMBER : Since common questions of facts and law have been raised in both the aforesaid appeals, the same are being disposed off by way of consolidated order to avoid repetition of discussion. 2. Appellant, M/s. Inductis (India) Pvt. Ltd. (hereinafter referred to as the assessee ) by filing the present appeals sought to set aside the impugned orders dated 22.12.2017 29.05.2018 passed by the Commissioner of Income - tax (Appeals)-4, New Delhi AO in consonance with the orders passed by the ld. DRP/TPO qua the AYs 2013-14 2014-15 respectively on the grounds inter alia that:- ITA No.1510/Del/2018 (AY 2013-14) 1. That the Learned Commissioner of Income Tax (Appeals) [ CIT(A) ] erred on the facts of the case and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the exempt dividend income, which was actually a mere automatic reinvestment as dividend accruing to the Appellant on mutual funds held by it. 2.4 That the Ld. DRP/Ld. AO erred in law and on the facts and in the circumstances of the case in disallowing the aforesaid amount of deemed expenses without establishing/ specifying nexus of same with earning of exempt income. 2.5 That the Ld. DRP/ Ld. AO erred in law and on the facts and in the circumstances of the case in relying upon the CBDT Circular No. 04/2014 without appreciating the fact that the said CBDT Circular No. 4/2014 have been overruled by the Jurisdictional High Court of Delhi in the case of PCIT vs. IL FS Energy Development Company Ltd.: 399 ITR 483 (Delhi). 3. That the Ld. AO has grossly erred in law and on the facts and in circumstances of the case in not allowing credit of Minimum Alternate Tax of ₹ 20,967,078 as claimed by the Appellant in the return of income. 4. That the Ld. AO has grossly erred in law and on the facts and in circumstances of the case by initiating penalty proceedings under section 271(1)(c) of the Act mechanically and without recording any satisfaction for its initiation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SHEC) on income-tax is an allowable expenditure for computing total income as per the provisions of the Income-tax Act, 1961. on the ground that additional ground sought to be raised is purely legal in nature and does not require any investigation of facts. Since ground sought to be raised by the assessee is legal in nature which can be raised at any stage of proceedings and necessary for complete and final adjudication of the controversy at hand, the same is allowed without going into the merits of the cases. GROUND NOS.1 5 (AY 2014-15) 8. Ground No.1 of AY 2014-15 needs no findings being general in nature and having not been pressed by the ld. AR for the taxpayer. Ground No.5 of AY 2014-15 qua levy of interest u/s 234B and 234C of the Act needs no specific finding being consequential in nature. GROUNDS NO.1, 1.1 1.2 (AY 2013-14) GROUNDS NO.2, 2.1, 2.2, 2.3, 2.4 2.5 (AY 2014-15) 9. Ld. AR for the assessee challenging the impugned order contended inter alia that the AO before invoking the provisions contained u/s 14A read with Rule 8D failed to record his dissatisfaction with the working given by the assessee that they have not incurred any ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in making the investment nor there is any financial cost of borrowed funds for making the investment. Ld. AR for the assessee also contended that the AO has invoked the provisions u/s 14A read with Rule 8D without recording his dissatisfaction that assessee company has not incurred any expenditure to earn the dividend income and relied upon Maxopp Investment Ltd. (supra). Ld. AR for the assessee also contended that no interest bearing funds have ever been used for investment to earn the dividend income. 14. When we examine the contentions raised by the ld. AR for the assessee that no satisfaction has been recorded by the AO rather invoked the provisions contained u/s 14A read with Rule 8D mechanically in the light of the observations made by the AO, it has come on record that generic observations have been given by the AO without disputing the financials of the assessee company which are audited one. When assessee has come up with a categoric defence that no expenditure has been incurred to earn the dividend income during the years under assessment and that all the investment during the years under assessment are dividend reinvested (Debt Oriented Funds) and that no direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be invoked mechanically. 17. In AY 2014-15 also, AO has mechanically applied section 14A read with Rule 8D without recording any dissatisfaction as to the working given by the assessee as to not incurring any expenses to earn the dividend income rather based his findings on the basis of generic observations that such a huge investment cannot be made without incurring expenditure. For AY 2014-15 also, assessee has brought on record fund statement also showing entire investment for the year under assessment as dividend reinvested which ratifies the working given by assessee. Ld. DRP also upheld the findings returned by the AO by holding that, the disallowance under Rule 8D(2)(iii) of the Income-tax Rules is mandatory in nature in a case where the assessee has claimed exempt income and consequently rejected the objections raised by the assessee. 18. Hon ble Delhi High Court in a case cited as Maxopp Investment Ltd. (supra) while deciding the identical issue as to how provisions contained u/s 14A read with Rule 8D are to be invoked by the AO held as under :- Section 14A even prior to the introduction of subsections (2) and (3) would require the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of Section 14A(2) and (3) read with Rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable. 20. By following the law laid down by Hon ble Apex Court in judgment cited as Godrej Boyce Manufacturing Company Ltd. (supra) and Hon ble High Court of Delhi in Maxopp Investment Ltd. (supra), we are of the considered view that disallowance to the tune of ₹ 22,60,300/- ₹ 35,75,677/- for Assessment Years 2013-14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ought to allow Education Cess (EC) and Secondary Higher Education Cess (SHEC) on income-tax being an allowable expenditure for computing the total income by relying upon the decision rendered by Hon ble Bombay High Court in case of Sesa Goa Limited vs. JCIT 117 taxmann.com 96 (Bombay HC). 25. Now, it is settled principle of law that Education Cess and Secondary Higher Education Cess paid on income-tax is an allowable deduction for computing the total income being not hit by the provisions contained u/s 40A(ii) of the Act, as has been held by Hon ble Bombay High Court in case of Sesa Goa Ltd. (supra). 26. Hon ble High Court in Sesa Goa Ltd. case (supra) held that education cess or any other cess is not included in clause (ii) of section 40(a) of the Act so there is no prohibition in claiming deduction of such amounts while computing the income of the assessee under the head profits gains of business or profession . Operative part of the aforesaid decision rendered by Hon ble Bombay High Court is extracted for ready perusal as under :- 27. The CBDT Circular, is binding upon the authorities under the IT Act like Assessing Officer and the Appellate Authority. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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