TMI Blog2022 (3) TMI 1336X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is in excess of dividend income earned for the year. It is well settled principle of law by the decision of various courts, including decision of M/s. Redington India Ltd. [ 2017 (1) TMI 318 - MADRAS HIGH COURT ] where it has been clearly held that disallowance contemplated u/s.14A r.w. Rule 8D cannot exceed exempt income. CIT(A), after considering relevant facts has rightly directed the Assessing Officer to recompute disallowance u/s.14A but restrict disallowance to the extent of exempt income earned for the year. Hence, we are inclined to uphold findings of the learned CIT(A) and reject ground taken by the revenue as well as the assessee. Additions towards deferred income on account of change in method - AO made addition on the ground that the assessee has failed to explain reasons for change in method of accounting and further, when income has already accrued or deemed to be accrued for the relevant assessment year, question of deferral of income to subsequent year does not arise - CIT-A deleted the addition - HELD THAT:- As from the impugned assessment year, the assessee has changed its method of accounting and thus, deferred AMC charges pertains to subsequent financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The delay in filing cross objection is neither intentional nor willful, but for the unavoidable reasons, therefore, he prayed that delay may be condoned in the interest of advancement of substantial justice. 3. The learned DR, on the other hand, strongly opposing condonation of delay petition filed by the assessee submitted that the reasons given by the assessee do not come within the ambit of reasonable and bonafide reasons, which can be considered for condonation of delay and hence, cross objection filed by the assessee may be dismissed as not maintainable. 4. Having heard both sides and considered the petition filed by the assessee for condonation of delay, we are of the considered view that reasons given by the assessee for not filing the cross objection within the time allowed under the Act comes under reasonable cause as provided under the Act for condonation of delay and hence, delay in filing of cross objection is condoned and cross objection filed by the assessee is admitted for adjudication. 5. The revenue has raised following grounds of appeal:- 1. The order of the learned CIT(A) is contrary to law and facts and circumstances of the case. 2. The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has raised following grounds of cross objection:- 1. The order of the learned CIT(A) is to be upheld as the said order is in consonance with the law and facts and circumstances of the case. 2.1 The learned CIT(A) has rightly restricted the disallowance to ₹ 69.29 lakhs made by the AO in respect of the disallowance u/s. 14A r.w. Rule 8D. 2.2 The learned C1T(A) was right in directing the AO to exclude interest on loans while computing disallowance u/s. I4A. 2.3 The learned CIT(A) rightly appreciated the fact that the assesse did not expend any managerial/admin costs attributable to earning dividend income. 2.4 The learned CIT(A) was right in directing the AO in restricting the disallowance to the extent of the exempt income earned during the year as per the provisions of Sec. 14A or Rule 8D. 3.1 The learned CIT(A) was right in allowing the expenditure of ₹ 2.08 crores being the cost of AMC. 3.2 The learned CIT(A) was right in holding that AMC income has not accrued as soon it is received by the assesse. 3.3 The learned CIT(A) rightly appreciated that the AMC charges are non-refundable and therefore the AMC charges are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee has earned dividend income of ₹ 15,71,210/- from mutual fund and claimed same as exempt u/s.10(34) of the Income Tax Act, 1961, however, the assessee company has not disallowed expenses relatable to exempt income. Therefore, the Assessing Officer considering relevant submissions of the assessee and also taken note of various expenditure debited into profit loss account has determined disallowance u/s.14A of the Act by applying Rule 8D of the I.T. Rules, 1962 and determined total disallowance of Rs,69,29,042/-. 9. The learned DR submitted that the learned CIT(A) erred in directing the Assessing Officer to restrict disallowance u/s.14A r.w. rule 8D of the I.T. Rules, 1962, to the extent of exempt income without appreciating fact that the assessee does not maintain separate books of account to establish that no borrowed funds were utilized in investments made in mutual funds. 10. The learned A.R., on the other hand, submitted that the learned CIT(A) has erred in not appreciating fact that the assessee has not utilized borrowed funds for investments in share capital of subsidiary company and thus, question of disallowance of interest expenses does not arise. For t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tered into AMC contract with its customers and has collected AMC charges. The said AMC contract spread over to two financial years. The assessee was accounting AMC charges on cash basis upto the assessment year 2012-13, however, from the assessment year 2013-14, the assessee has changed its method of accounting and accounted AMC charges pertains to impugned assessment year and balance AMC charges has been deferred and kept under deferred income to be offered to tax in subsequent financial year. The Assessing Officer had made additions towards deferred income on the ground that the assessee has failed to explain reasons for change in method of accounting and further, when income has already accrued or deemed to be accrued for the relevant assessment year, question of deferral of income to subsequent year does not arise. On appeal, the learned CIT(A) has deleted additions made by the Assessing Officer. 13. The learned DR submitted that the learned CIT(A) erred in deleting additions made by the Assessing Officer towards deferred income on account of AMC charges without appreciating fact that the assessee has failed to explain reasons for change in method of accounting. The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounting. Therefore, on the basis of change in method of accounting, the Assessing Officer cannot make additions towards income deferred to subsequent financial years. Further, the assessee was following cash system of accounting for AMC charges and has recognized income towards AMC charges as and when amount received from customers. However, from the impugned assessment year, the assessee has changed its method of accounting and thus, deferred AMC charges pertains to subsequent financial year, because the assessee has not rendered services to the customers and thus, question of accrual of any income to the period pertaining to subsequent assessment year does not arise. Therefore, we are of the considered view that when the assessee has explained reasons for change in method of accounting and further, disclosed effects in profit or loss for the relevant financial year in a statement of financial accounts prepared for the year, then the Assessing Officer should not have made additions towards deferred income only on the ground that the assessee does not explain reasons for change in method of accounting. We further noted that the Assessing Officer has observed that when the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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