×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
These are the latest case laws decided by various Income Tax Appellate Tribunals (ITAT) of India on Income Tax which have been published recently. The case laws are open for discussion and we invite expert comments from our members on its applicability and effect on relevant issues.
08-01-2019, PTC India, Section 14A, 14(2), 271(1)(c), Tribunal Delhi
1. These are the four appeals of the same assessee involving common solitary issue of disallowances u/s 14A of the Act for three years and levy of penalty u/s 271(1) ( c) of the act on such disallowance in one year. Therefore, they are heard together and disposed of by this common order.
2. For Assessment Year 2008-09 in ITA No. 5267/Del/2011, the assessee has raised the following grounds of appeal:-
“1. Whether on the facts and circumstances of the case, the ld. CIT (A) has erred in upholding the disallowance of Rs. 2,80,29,352/- made by the A.O. by applying rule 8D under section 14A?
2. Whether on the facts and circumstances of the case, the ld. CIT (A) has erred in upholding the rejection of the disallowable amount of Rs. 11,30,955/- offered by the assessee, without examining as to why the A.O. was not satisfied with the correctness of the claim of the assessee, having regard to the accounts of the previous year?
3. Whether on the facts and circumstances of the case, the ld. CIT (A) has erred in upholding that once having rejected the computation of disallowable amount offered by the assessee, the A.O. has no discretion but to apply rule 8D(2)(iii) as the words used in section 14(2) are “the A.O shall determine ” and the word “shall” does not leave any discretion, whatever be the result, of application of rule 8D(2)(iii)?”
3. The brief facts of the case for AY 2008-09 are that the assessee is engaged in the business of trading of power and coal and generation of power. Assessee company filed its return of income on 30.09.2008 showing income of Rs. 174438856/-. The assessee earned dividend income of Rs. 253850000/- and has investment of Rs. 13263.35 million in shares and mutual funds. The ld AO noted that dividend income does not form part of the total income and assessee did not attribute any disallowance u/s 14A of the Act. The assessee was asked to give details of expenses disallowable u/s 14A of the Act. The assessee submitted that Rule 8D cannot be applied as exempt income is earned from mutual funds and share under the portfolio management scheme. It was further stated that their cost and charges are not debited in general expenditure but are already accounted in exempt income. It was further stated that no expenditure are incurred on income which are exempt. It was further stated that there are minimum managerial expenses of the assessee. However, assessee submits that on pro rata basis the disallowance is only Rs. 11,30,955/- on account of managerial and administrative expenses. The ld AO rejected the explanation of the assessee as there is huge dividend income and huge investment. He further stated that the assessee has only made an estimate of disallowance on pro rata basis and has not stated that it has not incurred any expenses but contrary submitted that assessee has incurred managerial and administrative expenses. With respect to the satisfaction, the ld AO held that when the assessee itself has submitted the details on estimate basis and the assessee is also not sure about exact amount of expenditure but has stated that it has incurred managerial and administrative expenses, its stands is also changing because in the return of income the assessee has not offered any disallowance but during the assessment proceedings, on being questioned, assessee itself has proposed disallowance of Rs. 1130955/-, he is satisfied about the incorrectness of claim of assessee. Accordingly, he applied Rule 8D of the Income Tax Rules and computed the disallowances of Rs. 36274516/- u/s 14A of the Act in order us 143 (3) of the act.
4. The assessee preferred an appeal before th ld CIT(A) who deleted the disallowance on account of interest not attributable to any specific receipt or income of Rs. 8245164/- holding that interest payment is attributable to the income on sale of electricity. However, he upheld the disallowance @0.5% under Rule 8D (2)(iii). Therefore, the assessee is aggrieved with the same and has preferred an appeal before us.
5. The ld AR submitted no proper satisfaction is recorded by the ld AO as required u/s 14A of the Act. He further stated that investment is made in mutual fund and expenditure is debited to the mutual fund income account only. Therefore there cannot be any disallowance u/s 14A of the Act. He stated that even otherwise the assessee has offered disallowance on proportionate basis. He further submitted an application of additional evidence to show that the disallowance is far less of only Rs. 4143014/-. In the form of additional evidence he submitted a certificate of the Chartered Accountant to show the amount of disallowance on proportionate basis. His other argument was that while working out the disallowance u/s 14A read with Rule 8D only that investment are required to be considered from which exempt income is earned. He also relied upon several judicial precedents on this aspect and lead decision is of the Honorable Delhi high court in case of ACB India Limited V ACIT dated 8/4/2015