TMI Blog2022 (9) TMI 760X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses are incurred by cash and the provisions of section 40A(3) of the Act are attracted and moreover, the assessee has also not made out his case to show that it falls under Rule 6DD of Income Tax Rules, 1962. Under the above facts and circumstances and since the assessee has not been able to substantiate with any form of evidence towards sales promotion expenses, we find no reason to interfere with the order passed by the ld. CIT(A) on this issue and accordingly, the ground raised by the assessee is dismissed for the assessment years under consideration. Disallowance u/s 14A of the Act r.w. Rule 8D - necessity of recording satisfaction - HELD THAT:- AO was fully satisfied that the provisions of Rule 8D has to be invoked based on the materials available on record. Therefore, it cannot be said that the Assessing Officer has not recorded satisfaction. Under the above facts and circumstances, the ground raised by the assessee is dismissed. Disallowance u/s 14A vis- vis computation of book profits u/s 115JB - Since, the issue is covered by case of ACIT Vs. Vireet Investment Pvt. Ltd. [ 2017 (6) TMI 1124 - ITAT DELHI] and by the decision of Sobha Developers Ltd. [ 2021 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iated that the exceptions carved out for the non application of the said provision is not restricted to the circumstances envisaged in Rule 6DD of the Income Tax Rules, 1962, thereby vitiating his findings in this regard. 7. The CIT (Appeals) erred in partially disallowing the notional expenditure on the application of Section 14A of the Act r/w Rule 8D of Income Tax Rules, 1962 without assigning proper reasons and justification and further ought to have appreciated that the said Rule 8D of the Income Tax Rules 1962 was brought into this statute only at the fag end of the assessment year under consideration, thereby vitiating his decision in that regard. 8. The CIT (Appeals) failed to appreciate that having failed to record satisfaction with regard to claim of expenditure to earn the tax free income, the application of Rule 8D to the facts of the case was erroneous and unjustified. 9. The CIT (Appeals) failed to appreciate that there was no proper opportunity given before passing of the impugned order and any order passed in violation of the principles natural justice would be nullity in law. 10. The Appellant craves leave to file additional grounds/arguments at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere are instances where no TDS was made. During the course of assessment proceedings, the assessee was able to produce evidence only in respect of part of the expenses for travelling undertaken by employees in connection with sales promotion for the assessment year 2010-11. The Assessing Officer has also accepted certain expenses for the assessment year 2008-09 whereas the Assessing Officer disallowed the entire expenses claimed in the assessment year 2009-10. By taking into account all the above aspects, the Assessing Officer disallowed expenses amounting to ₹.1,15,84,285/-, ₹.4,73,74,018/- and ₹.3,40,30,732/- for the assessment years 2008-09, 2009-10 and 2010-11 respectively. On appeal, by considering the submissions of the assessee and vide his common order, the ld. CIT(A) confirmed the assessment orders. 3. On being aggrieved, the assessee is in appeal before the Tribunal. By referring to the grounds of appeal, the ld. Counsel for the assessee has submitted that the details furnished in support of the claim and the relevant facts were not considered in proper perspective and prayed that the sales promotion expenses incurred and claimed in the computation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 86 ITR 439 has held that Although there might be such an agreement in existence and the payments might have been made, it was still open to the Income-tax Officer to consider the relevant factors and determine for himself whether the commission said to have been made to the selling agents or any part thereof was properly deductible u/s 37. The onus is upon the appellant to establish that the sales promotion expenses have been incurred, whereas the appellant did not even furnish the details of the parties to whom such payments have been made. 7.3.2. It was also submitted that payments made to the contract employees of retail/distributing arm of State Government i.e. TASMAC or Kerala State Beverages Corporation (KSBC) have been wrongly disallowed as payments prohibited by law. It is the submission of the appellant that these contract employees cannot be equated with Government servants. The submission of the appellant is not acceptable. In my view, these payments will fall under explanation to section 37(1) of the Act because the employees of TASMAC or KSBC are indirectly employees of the Government because TASMAC and KSBC are Government undertakings. Any payment made to these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Rule 6DD. In these circumstances, the disallowance of Rs.1,15,84,285/-, Rs.4,73,74,018/- and Rs.3,40,30,732/- made for the Assessment Years 2008-09, 2009-10 and 2010-11 respectively are hereby confirmed. 5.1 Against the total sales promotion expenses claimed by the assessee of ₹.2,48,73,275/-, ₹.4,73,74,018/- and ₹.4,53,74,309/-, after examining the details furnished by the assessee, the Assessing Officer has disallowed a sum of ₹.1,15,84,285/-, ₹.4,73,74,018/- and ₹.3,40,30,732/- for the assessment years 2008-09, 2009-10 and 2010-11 respectively. Over and above, the ld. CIT(A) has observed that the payments made to the contract employees of retail/distributing arm of State Government i.e. TASMAC or Kerala State Beverages Corporation (KSBC) fall under explanation to section 37(1) of the Act for the reason that the employees of TASMAC or KSBC are indirectly employees of the Government as TASMAC and KSBC are Government undertakings and any payment made to these person otherwise than a legal remuneration is an offense under the Prevention of Corruption Act. Further, it was observed that most of the expenses are incurred by cash and the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 14A r.w. Rule 8D is concerned, the Assessing Officer has clearly recorded in the assessment orders that the assessee has incurred expenses towards managerial remuneration and other routine administrative expenses, a portion of which must have been attributed towards earning of exempt income. Moreover, the Assessing Officer has noticed that the assessee has debited interest payments towards secured and unsecured loans. It is only after examining the books of accounts, the Assessing Officer came to the conclusion that the assessee has incurred administrative and managerial expenses and on finding that a portion of such expenses were not attributed towards earning of exempt income, he came to the conclusion that Rule 8D must be invoked and a portion of expenditure must be disallowed a portion of such expenditure. The above findings are recorded by the ld. CIT(A) in his order at para 8.3.1 to 8.3.12. 6.4 After considering the assessment order and the appellate order, we came to a conclusion that the Assessing Officer was fully satisfied that the provisions of Rule 8D has to be invoked based on the materials available on record. Therefore, it cannot be said that the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act, is to be made without resorting to the computation as contemplated u/s 14A of the Act read with Rule 8D of the Rules. 6.7 Similar issue was subject matter in appeal in the case of Sobha Developers Ltd. v. DCIT, LTU, Bangalore [2021] 434 ITR 266 (Kar.), wherein, the Hon ble Karnataka High Court has considered the entire provision of section 115JB of the Act in para 7 of its order and the relevant para is reproduced as under: 7. Thus from perusal of the relevant extract of section 115JB, it is evident that subsection (1) of section 115JB provides the mode of computation of the total income of the assessee and tax payable on the assessee under section 115JB of the Act. Subsection (5) of section 115JB provides that save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee being a company mentioned in this section. Therefore, any expenditure relatable to earning of income exempt under section 10(2A) and section 10(35) of the Act is disallowed under section 14A of the Act and is, added back to book profit under clause (f) of section 115JB of the Act, the same would amount to doing violence with the statutory provision viz., ..... X X X X Extracts X X X X X X X X Extracts X X X X
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