9911796707
TMI Blog2024 (5) TMI 1162X X X X Extracts X X X X X X X X Extracts X X X X ..... ding that the same is erroneous and prejudicial to the interests of the revenue. 2. On the facts and in the circumstances of the case and in law, the Principal Commissioner of Income-tax erred in holding that the assessment order is liable for revision under clause (a) and (b) of the Explanation 2 to section 263 since the Assessing Officer has not made sufficient inquiries in respect of the computation of disallowance under section 14A. 3. On the facts and in the circumstances of the case and in law, the Principal Commissioner of Income-tax erred in not appreciating the fact that the case of the appellant was selected for scrutiny assessment specifically to verify the expenses debited to profit and loss account for earning exempt income. 4. On the facts and in the circumstances of the case and in law, the Principal Commissioner of Income-tax erred in holding that the assessment order is erroneous and prejudicial to the interests of the revenue solely on the ground that the disallowance under section 14A has not been computed as per Rule 8D. 5. On the facts and in the circumstances of the case and in law, the Principal Commissioner of Income-tax erred in holding that dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances of the case and in law, the Principal Commissioner of Income-tax erred in not accepting the suo moto disallowance under section 14A amounting to Rs. 14,85,415 made by the appellant on a reasonable basis after analyzing each and every head of expenditure debited to the Profit and Loss Account. 13. On the facts and in the circumstances of the case and in law, the Principal Commissioner of Income-tax erred in holding that the appellant had not provided the method of computation of suo moto disallowance by the appellant on a reasonable basis without appreciating that the appellant had submitted detailed computation thereof during the course of assessment proceedings. 14. On the facts and in the circumstances of the case and in law, the Principal Commissioner of Income-tax erred in not appreciating that disallowance under section 14A as per Rule 8D results in disallowance of entire expenses claimed in the return of income thereby not allowing any expense for earning taxable income. 15. Without prejudice to the above grounds of appeal and in the alternative, the appellant prays that if the same basis as per Rule 8D viz. 1% of the average value of assets other than a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,548/-. Thus the expenses disallowable under clause (ii) of Rule 80(2} is 1% of this amount and that would of Rs. 2,62,10,345/-. Thus total disallowable amount computed as per the manner provided under Rule 8D would be of Rs. 2,62,1 0.345/- +1,2807- but since the total claim of expenses is only of Rs. 67,12,4107- the disallowance is to be restricted to this amount. The provisions of rule 8D are clear and there appears no ambiguity left for any other interpretation as far as computation is concerned. Thus in this case disallowance of Rs. 67, 12, 41 OA was required to be made as against Rs. 14,85,515/- disallowed by the assessee itself and accepted by the FAO. Thus there was a short disallowance of expenses u/s 14A of the Act by an amount of Rs. 52,26,595/-. (iv) During the course of assessment proceedings, the FAO has accepted the computation of disallowance u/s 14A as per rule 8D neither made any query in this regard nor has otherwise examined the case for disallowance of expenses u/s 14A in the manner prescribed under rule 8D of the Income Tax Rules. (v) As per rule 8D, disallowance u/s 14A comes at Rs. 2,62,10,345/- and it needs to be restricted to Rs. 67,12,410/-, as discu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... related to Rule 8D of the Rule and only the expenses related to Rs. 1,06,19,222/- claimed in Profit and Loss a/c. The ld. AR placed that other than the demat charges amount to Rs. 1280/-, no other expenses has close proximity with the exempted income u/s 10(38) of the amount to Rs. 34,79,27,529/-. The proportionate expenses amount to Rs. 14,85,415/- added back with the total income of the assessee u/s 14A of the Act. The ld. AR invited our attention at APB page 93 in details of expenses to compute the amount u/s 14A which is reproduced as below: - "Expenses incurred for earning taxable Income In this connection, your kind attention is also invited to the total expenses claimed by the Company in the return of income for AV 2018-19: Total expenditure debited to the Profit and Loss account. 1. Employee benefit expense 36.26,961 2. Depredation 1,01,898 3. Other Expenses 68,90,363 1,06,19,222 Less: Expenses already disallowed: 1. Depredation 1,01,898 . 2- CSR expense 38,00,000 3. Late fees for delay in fifing of return of Profession tax 1,000 4. Loss on asset discarded 3,914 (39,06,812) Balan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure. On the same analogy the exemption is also in respect of net income. Expenses allowed can only be in respect of earning of taxable income. This is the purport of section 14A. In section 14A, the first phrase is "for the purposes of computing the total income under this Chapter" which makes it clear that various heads of income as prescribed under Chapter IV would fall within section 14A. The next phrase is, "in relation to income which does not form part of total income under the Act". It means that if an income does not form part of total income, then the related expenditure is outside the ambit of the applicability of section 14A. Further, section 14 specifies five heads of income which are chargeable to tax. In order to be chargeable, an income has to be brought under one of the five heads. Sections 15 to 59 lay down the rules for computing income for the purpose of chargeability to tax under those heads. Sections 15 to 59 quantify the total income chargeable to tax. The permissible deductions enumerated in sections 15 to 59 are now to be allowed only with, reference to income which is brought under one of the above heads and is chargeable to tax. If an income like divid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h a Debit Item as explained above, hence, it is not "expenditure incurred" in terms of section 14A. Expenditure is a pay-out. It relates to disbursement. A pay-back is not an expenditure in the scheme of section 14A. For attracting section 14A, there has to be a proximate cause for disallowance, which is its relationship with the tax exempt income. Pay-back or return of investment is not such proximate cause, hence, section 14A is not applicable in the present case. Thus, in the absence of such proximate cause for disallowance, section 14A cannot be invoked. In our view, return of investment cannot be construed to mean "expenditure" and if it is construed to mean "expenditure" in the sense of physical spending still the expenditure was not such as could be claimed as an "allowance" against the profits of the relevant accounting year under sections 30 to 37 of the Act and, therefore, section 14A cannot be invoked. Hence, the two asset theory is not applicable in this case as there is no expenditure incurred in terms of section 14A." Even in the case of Godrej and Boyce Manufacturing Co. Ltd. (2010) 328 ITR 81 (Bom), the Bombay High Court held that the expenditure to be allowed dea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pted by the Assessing Officer in the immediately previous assessment years i.e. AY 2016-17 and AY 2017-78, (refer computation page nos, 46-49) Expenses incurred for earning taxable Income In this connection, your kind attention is also invited to the total expenses claimed by the Company in the return of income for AV 2018-19: Total expenditure debited to the Profit and Loss account. 1. Employee benefit expense 36.26,961 2. Depredation 1,01,898 3. Other Expenses 68,90,363 1,06,19,222 Less: Expenses a/ready disallowed: 1. Depredation 1,01,898 . 2- CSR expense 38,00,000 3. Late fees for delay in fifing of return of Profession tax 1,000 4. Loss on asset discarded 3,914 (39,06,812) Balance expenses claimed (before disallowance under section 14A) 67,12,410 Less: Disallowance under section 14A (14,85,415) Balance expenses claimed against taxable income 52,26,995 4.4 The ld. AR further invited our attention in assessment order and mentioned that the selection of the scrutiny was one of the reason was earning of exempted income in investment made to earn exempt income. The relevant paragr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in its Income-tax return filed for the year under consideration. Ultra Tech Cement Limited being public company as defined u/s.2(71) of Companies Act, 2013 and an listed entity, satisfies the conditions laid out in s.2(18) of the Act and therefore it is a company in which public are substantially interested. The assessee company, being 100% subsidiary of Ultra Tech Cement Limited satisfies the primary condition of being a company which is a deemed public company as per proviso to s. 2(71) of Companies Act, 2013. One of the secondary condition of s. 2(18)(b) of the Act viz. whole of the share capital of such subsidiary-company is held by a company in which public are substantially interest is also satisfied since the shares of the assessee is held by its parent company which is a company in which public are substantially interested i.e. Ultra Tech Cement Limited. We draw strength on the decision of the Coordinate Hyderabad Bench in the case of Apollo Sugar Clinics Ltd. (supra). The relevant extract of the decision of the Tribunal is reproduced below : "...We noticed that assessee-company is step-down subsidiary of Apollo Hospitals Enterprises Ltd., The AHEL is a listed company in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... position. Thus, even on this count the impugned order cannot be sustained. 28. We have already held that provisions of s. 56(2)(viib) of the Act and s.68 of the Act are not applicable in present case and hence order passed by the AO is not prejudicial to the interest of revenue in any case. Therefore, even otherwise, any enquiry by the AO in this regard could not have resulted into any imposition of tax which has escaped assessment. It is also worth noting that prior to the conclusion of assessment as well as subsequent thereto, the investigation wing and the AO did make specific enquiries relating to applicability of s. 56(2)(viib) by issuing notices u/s 133(6) of the Act. Based on the responses filed by the assessee Company no action was taken by the AO/Investigation wing signifying that they were satisfied with the non-applicability of provisions of s. 56(2)(viib) to the assessee being a company in which public are substantially interested. In view of the above discussions, as also bearing in mind the entirety of case, we are of the view that the PCIT was not justified in invoking the jurisdiction u/s. 263 of the Act since the order passed by the AO is neither erroneous nor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r ignorance or in violation of any law; or passed without taking into consideration all the relevant facts or by taking into consideration irrelevant facts. The 'prejudice' that is contemplated under s. 263 is the prejudice to the income-tax administration as a whole. The revision has to be done for the purpose of setting right distortions and prejudices caused to the Revenue in the above context. The fundamental principles which emerge from the several cases regarding the powers of the CIT under s. 263 may be summarized below : (i) The CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interests of the Revenue. Both the conditions must be fulfilled. (ii) Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the AO and it is only when an order is erroneous, that the section will be attracted. (iii) An incorrect assumption of facts or an incorrect application of law will suffice for the requirement or order being erroneous. (iv) If the order is passed without application of mind, such order will fall under the category of erroneous order. (v) Every loss of revenue cannot be treate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment order was passed, a notice was served on the assessee under Section 142 (1) of the Act and 20 queries pertaining to different heads were made therein. The ninth query in the notice under Section 142 (1) of the Act pertains to the expenditure for the Corporate Social Responsibility. By the said query, the assessee was directed to give a detailed note of expenditure for the Corporate Social Responsibility along with bifurcation of the expenses under different heads. An exhaustive reply was submitted by the assessee to the notice under Section 142 (1) of the Act. In paragraph 8 of the reply, the assessee gave the detailed note pertaining to the expenditure for the Corporate Social Responsibility under different heads that runs into several pages. The heads under which the expenses were made towards the Corporate Social Responsibility were specifically mentioned as health, environment, sports, education etc. and for each of the different heads, particulars were given in respect of every minor or major expenses. A detailed note on the expenditure on the Corporate Social Responsibility claim was given in paragraph 8 which runs into more than five pages. It is not disputed tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would not lead to a conclusion that no mind has been applied to it. In the case of Fine Jewellery (India) Ltd. (supra) this Court found that from the nature of the expenditure as explained by the assessee in that case the Assessing Officer took a possible view and therefore, it was not a case where the provisions of Section 263 of the Act could have been resorted to. Considering the explanation of the assessee in this case, we are also of the view that the Assessing Officer had taken a possible view. In the case of Nirav Modi (supra) this Court held that the Tribunal was justified in that case in cancelling the order under Section 263 of the Act as the assessee had responded to the query made to it during the assessment proceedings and merely because the assessment order did not mention the same, it would not lead to a conclusion that the Assessing Officer had not applied his mind to the case. In the instant case, we find that the Assessing Officer has applied his mind to the claims made by the assessee and wherever the claims were disallowable they have been discussed in that assessment order and there is no discussion or reference in respect of the claims that were allowed. In vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Ltd(supra). The Section 14A would be applicable on the dividend income, earned by the assessee which is exempted U.s 10(38) of the Act. The assessee supplied the list of expenses for calculating the expenses related u/s 14A of the Act. The assessee itself had calculated amount of Rs. 14,85,415/- and offered for tax during filing of return. The ld. AO is not expected to raise more queries, if the ld. AO is satisfied about the admissibility of claim on the basis of the material and the details supplied. So, assessment order cannot be called erroneous and the application of Section 263 is not justified. The respectful reliance is placed Moil Ltd (supra). The ld. PCIT has calculated the amount of Rs. 67,12,410/- u/s 14A. The assessee had declared the amount of Rs. 14,85,815/-. So, balance amount of Rs. 52,26,505/- is escaped income which is caused the assessment order erroneous and prejudicial to the interest of the revenue. When the ld. AO adopted one of the possible views, his order does not suffer from any error. Therefore, in view of the aforestated essence of precedents on the issue of revision under s. 263, the twin conditions - the order is erroneous and prejudicial to the int ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
