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TMI Blog2022 (12) TMI 552X X X X Extracts X X X X X X X X Extracts X X X X ..... is a public company and engaged in the business of Printing & Publishing and Manufacturing & Trading activity. The AO during the assessment proceeding found that the assessee has made investment aggregating to Rs. 1093,54,05,787/- in mutual funds, equity shares and gold deposits on which it earned exempted income of Rs. 10,51,88,705/- only. The assessee has suo-motu has made disallowance under section 14A of the Act for Rs. 18,59,309/- only. However, the AO was of the view that disallowance should be made as per the procedure prescribed under rule 8D(2) of Income Tax Rule. Accordingly, the AO sought an explanation from the assessee by issuing show cause notice. 3.1 The assessee in response thereto submitted that it had its own fund of Rs. 1306,00,28,895/- which is sufficient enough to make investment of Rs. 1093,54,05,787/- from which it earned both taxable as well as exempted income. Against the exempted income, it has made suo-motu disallowances by identifying specific expenses, therefore, no further disallowance needs to be made. 3.2 The assessee further contended that no disallowance under section 14A of the Act is required to be made of interest expenses as well administrat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stment in Mutual where fresh transactions carried out were yielding very meager exempted income in its hand. The provision section 14A of the Act requires to disallow the expenditure incurred in connection with earning of the exempted income. Considering the fact that the majority of exempted income earned from the investment in equity shares in which there is no change in holding or no new investment made, the suo-motu disallowances made is sufficient. 6.1 The assessee further contended that under the provision of section 14A read with rule 8D only net interest expenditure should be considered. In its case besides having sufficient interest free own fund, it has earned interest income of Rs. 2,08,49,920/- which is far more than the interest expenditure of Rs. 37,231/- incurred. Hence no disallowances of interest expense is required. 6.2 The assessee further submitted that the AO while computing the disallowance of administrative expenses considered entire investment instead of considering only those investment which yielded exempted income in the year under consideration. 7. The learned CIT(A) after considering the facts in totality deleted the disallowances of interest expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m. 12. We have heard the rival contentions of both the parties and perused the materials available on record. The provisions of section 14A of the Act provides that the assessee cannot claim the deduction of the expenditure incurred in relation to the income which is exempted from tax. Generally, the provisions of section 14A of the Act is applicable in a situation where the assessee carries on the business, the income of which is taxable and simultaneous has the income from exempted sources. In such a situation, there is a possibility that the assessee might have incurred certain expenses in relation to the exempted income which will be claimed as deduction against the taxable income. Thus, the provisions of section 14A restricts the deduction of the expenses incurred by the assessee in relation to the exempted income against the taxable income. Generally, the assessee does not maintain separate books of accounts with respect to exempted as well as taxable income. In most of the cases, even the common bank account is used for the transactions relating to taxable and exempted income. Accordingly, it has become an ongoing dispute between the taxpayer and the revenue with respect to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest free funds available with the assessee. The Tribunal has also followed its own order for Assessment Year 2002-03. 8. In view of the above findings, we find no reason to interfere with the judgment of the High Court in regard to the first question. Accordingly, the appeals are dismissed in regard to the first question. 12.2 In view of the above, we can safely hold that there cannot be any disallowance of interest expenses under the provisions of section 14A read with rule 8D of Income Tax Rule. 12.3 Coming to disallowances of the administrative expenses. In this regard we note certain facts as detailed below: Gross income of the assessee from taxable sources Rs. 598.05 crores Gross income of the assessee from exempted sources Rs. 10.51 crores Gross Total income of the assessee from both source Rs. 608.57 crores 12.4 Form the above we find that the percentage of exempted income in relation to the gross total income of the assessee stands at 1.73 % approx. 12.5 We further note that against the gross income of Rs. 608.57 crores, the assessee incurred administrative expenses being employee benefit expenses of Rs. 23.87 crores and other expenses of Rs. 71.56 crores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been called board meetings, involvement of the supporting staff and likewise certain expenses in the form of stationary, refreshment, building repairs, Misc. expenses etc. must have been incurred by the assessee. However, the assessee has nowhere made any disallowance of such expenses. Therefore, the AO rightly disagreed with the correctness of the claim made by the assessee. But the question arises, if the AO is not satisfied with the correctness of the claim made by the assessee, can he resort to the provisions of rule 8D(2) of income tax rule. The answer stands in affirmative but subject to one caveat, he has to refer the books of accounts of the assessee. But in the given case the AO has certainly pointed out the defects in the claim made by the assessee for the expenses against the exempted income, but he did not consider the accounts of the assessee and directly jumped to the provisions of rule 8D of Income Tax Rule for the purpose of the disallowance which have given absurd amount of disallowance of the administrative expenses as discussed above. Accordingly, we are not convinced with the approach of the AO to make the disallowance as per the provisions of rule 8D of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d/2019 where the issue has been decided vide paragraph no. 12 to 12.8 of this order against the Revenue. For detail discussion, please refer the aforesaid paragraph of this order. Hence the ground of appeal of the Revenue is hereby dismissed. 15. The next issue raised by Revenue vide ground no. 3 of its appeal is that the learned CIT(A) erred in deleting the disallowances of business expenditure of Rs. 3,97,72,249/- only. 16. The assessee in the year under consideration claimed that it has launched various scheme in order to retain its customer base apart from "Lavjana Scheme" by way of providing gift to customers on regular basis. The assessee claimed that such expenses of Rs. 3,97,72,249/- are in the nature of business promotion which were incurred in the regular course of business. The assessee further claimed the identical business development expenses has been incurred since many years which have been claimed revenue expenditure whereas Department treated the same as capital expenditure. The dispute has been resolved by the Hon'ble ITAT in own case of the assessee for earlier A.Ys. in favour of the assessee by holding the impugned expenditure as business expenses. 17. Howev ..... X X X X Extracts X X X X X X X X Extracts X X X X
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