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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI G. MANJUNATHA
PER BENCH
Aforesaid cross appeals for the assessment year 2010–11 and appeal by the assessee for assessment year 2011–12 are against two separate orders of learned Commissioner (Appeals)–7, Mumbai.
./2015 Assessee’s Appeal – A.Y. 2010–11
Ground no.4, being of general nature is not required to be adjudicated upon.
In grounds no.1 and 2, assessee has challenged decision of the learned Commissioner (Appeals) in sustaining the disallowance of 3 M/s. Smita Conductors Ltd.
administrative expenditure under section 14A r/w rule 8D(2)(iii) for an amount of ` 7,60,685.
In ground no.3, assessee has challenged the disallowance made under section 14A while computing book profit under section 115JB of the Act.
Brief facts are, the assessee a company is engaged in the business of manufacturing of ACSR and aluminium conductors. For the assessment year under dispute, assessee filed its return of income on 20th September 2010 declaring total income of ` 33,08,11,504. During the assessment proceedings, the Assessing Officer noticed that the assessee in the relevant previous year has earned exempt income by way of share in profit of partnership firm amounting to ` 4,26,768 and dividend income of ` 1,86,96,916. When the Assessing Officer called upon the assessee to furnish details of expenses incurred for earning exempt income and also to explain why disallowance of expenditure under section 14A should not be made in terms with rule 8D, the assessee vide letter dated 16th February 2012, submitted a working of expenditure attributable to earning of exempt income which worked out to ` 22,002. The Assessing Officer being of the view that disallowance under section 14A has to be made in terms of the methodology provided under rule 8D(2) of the rules, proceeded to 4 M/s. Smita Conductors Ltd.
compute disallowance in terms of the said provision which was quantified at ` 64,97,712 comprising of interest expenditure under rule 8D(2)(ii) of ` 57,37,027 and administrative expenditure under rule 8D(2)(iii) of ` 7,60,685. The very same amount was also added to the book profit computed under section 115JB of the Act. Being aggrieved of the disallowance / addition made by the Assessing Officer as aforesaid, assessee preferred an appeal before the first appellate authority.
The learned Commissioner (Appeals) after considering the submissions of the assessee and taking note of the fact that interest free surplus fund available with the assessee is far more than the investments made, held that disallowance of interest expenditure under rule 8D(2)(iii) cannot be made. Accordingly, he deleted the said disallowance. However, insofar as disallowance of administrative expenditure under rule 8D(2)(iii) is concerned, the learned Commissioner (Appeals) sustained the disallowance made by the Assessing Officer at ` 7,60,685. Being aggrieved of the aforesaid decision of the learned Commissioner (Appeals) the assessee is in appeal before us.
The learned Authorized Representative submitted, before the Assessing Officer the assessee has submitted a working of the expenditure attributable to earning of exempt income. Drawing our
5 M/s. Smita Conductors Ltd. attention to the said working, a copy of which is at Page–10 of the paper book, he submitted, the assessee has worked out the disallowance on a reasonable and scientific basis taking into account the man hour spent for the investment activities. He submitted, the assessee has also allocated other expenses on reasonable and scientific basis. He submitted, without properly considering the claim of the assessee and without recording any satisfaction with regard to the correctness of assessee’s claim the Assessing Officer straight away proceeded to compute disallowance under rule 8D(2).
Learned Authorized Representative submitted, in the preceding assessment years i.e., assessment year 2008–09 and 2009–10, the Tribunal has upheld lump–sum disallowance of ` 25,000 under rule 8D(2)(iii) r/w section 14A. Therefore, he submitted, similar disallowance may be made in the impugned assessment year as well.
The learned Departmental Representative relied upon the observations of the first appellate authority.
We have considered rival submissions and perused material on record. It is evident, during the assessment proceedings, the assessee had submitted a working of disallowance to be made under section 14A. On a perusal of the said working, it is noticed that the assessee has apportioned salary cost and other expenditures on a particular
6 M/s. Smita Conductors Ltd. basis. Though, the Assessing Officer in the assessment order has referred to the working of disallowance under section 14A submitted by the assessee, however, he has rejected the claim of the assessee simply for the reason that provisions of rule 8D are applicable to the impugned assessment year. While doing so, the Assessing Officer has completely overlooked the provisions contained under section 14A(2) and rule 8D(1) which mandate that before making any disallowance under section 14A r/w rule 8D, the Assessing Officer must record his satisfaction that the claim made by the assessee with regard to expenditure attributable to earning of exempt income is incorrect having reference to the books of account. A reading of the impugned assessment order reveals that the Assessing Officer has not recorded any satisfaction with regard to correctness or otherwise of assessee’s claim of expenditure for earning exempt income. In view of the aforesaid, we are inclined to restore the issue relating to disallowance under rule 8D(2)(iii) to the Assessing Officer for fresh adjudication after due opportunity of being heard to the assessee. Grounds no.1 and 2 are allowed for statistical purposes.
Insofar as ground no.3 is concerned, it is evident, the Assessing Officer has computed the tax liability under the normal provisions of the Act. Therefore, this ground is of mere academic importance. For this reason also, learned Authorised Representative has not advanced
7 M/s. Smita Conductors Ltd. any argument on this ground at the time of hearing. This ground is, therefore, dismissed as not pressed.
In the result, assessee’s appeal for A.Y. 2010–11 is partly allowed for statistical purposes. ./2015 Revenue’s Appeal – A.Y. 2010–11
In ground no.1, Revenue has challenged deletion of disallowance of interest expenditure amounting to ` 57,37,027 made under rule 8D(2)(ii).
Relevant facts relating to this issue have already been discussed by us while dealing with grounds no.1 and 2 in assessee’s appeal being ITA no.444/Mum./2015, herein before. Suffice to say, during the assessment proceedings, the Assessing Officer noticing that the assessee has earned exempt income in the relevant previous year proceeded to compute disallowance under section 14A r/w rule 8D at ` 64,97,712 which included disallowance of interest expenditure under rule 8D(2)(ii) amounting to ` 57,37,027.
Learned Commissioner (Appeals) taking note of the fact that the assessee had sufficient interest free fund available with it to make the investment deleted the disallowance of interest expenditure.
8 M/s. Smita Conductors Ltd.
We have considered rival submissions and perused material on record. As could be seen from the facts on record, as against surplus interest free fund available by way of share capital and reserves and surplus amounting to ` 6223.60 lakh, the investments made were to the tune of ` 1594.73 lakh. Therefore, keeping in view the ratio laid down by the Hon'ble Jurisdictional High Court in case of CIT v/s HDFC Bank Ltd., [2014] 366 ITR 505 (Bom.), disallowance of interest expenditure under rule 8D(2)(ii) cannot be made. Accordingly, we uphold the order of the learned Commissioner (Appeals). Ground no.1 is dismissed.
In ground no.2, Revenue has challenged deletion of disallowance made of ` 3,22,115 on account of commission and brokerage payment.
Brief facts are, during the assessment proceedings, the Assessing Officer noticing that the assessee has claimed deduction towards payment of commission and brokerage amounting to ` 3,22,195 to four parties called upon the assessee to furnish evidence regarding the services availed from such parties. Alleging that the assessee failed to furnish reasonable explanation and also taking note of the fact similar claim made by the assessee was disallowed in the preceding
9 M/s. Smita Conductors Ltd. assessment years the Assessing Officer disallowed the amount of ` 3,22,195.
The assessee challenged the disallowance before the learned Commissioner (Appeals) who taking note of the fact that the assessee has furnished relevant details during the assessment proceedings deleted the addition.
We have considered rival submissions and perused the material on record. As could be seen from the assessment order, being influenced by similar disallowance made in the preceding assessment years the Assessing Officer disallowed the commission and brokerage payment in the impugned assessment year. However, the learned Commissioner (Appeals) has recorded a finding of fact that during the assessment proceedings the assessee has furnished relevant details relating to commission and brokerage payment. Further, while deciding assessee’s appeal on identical issue arising in assessment year 2008–09 and 2009–10 in and 159/Mum./2013 dated 20th January 2017, the Tribunal deleted the disallowance made by the Assessing Officer and partly sustained by the learned Commissioner (Appeals). Respectfully following the decision of the Tribunal in assessee’s own case, we uphold the order of the learned Commissioner (Appeals) on this issue. Ground raised is dismissed.
10 M/s. Smita Conductors Ltd.
In the result, Revenue’s appeal is dismissed. ./2015 Assessee’s Appeal – A.Y. 2011–12
In grounds no.1 and 2, assessee has challenged disallowance of ` 8,67,830, made under rule 8D(2)(iii).
The issue raised in these grounds is identical to the issue raised in grounds no.1 and 2 in assessee’s appeal being ITA no.444/Mum./ 2015. Facts involved are more or less identical except for the fact that in the impugned assessment year, the assessee in course of assessment proceedings has furnished a working of disallowance of expenditure under section 14A amounting to ` 1,44,854. However, the basis for disallowance adopted by the assessee is similar to assessment year 2010–11. Therefore, consistent with our decision while deciding grounds no.1 and 2 raised by the assessee in its appeal being ITA no.444/Mum./2015, we restore the issue to the file of the Assessing Officer for de novo adjudication with similar direction. These grounds are allowed for statistical purposes.
Ground no.3 being of academic nature does not require adjudication.
11 M/s. Smita Conductors Ltd.
In ground no.4, assessee has challenged the addition made of ` 1,03,320 on the basis of AIR information.
Brief facts are, during the assessment proceedings, the Assessing Officer on the basis of AIR information generated from the system of the Department found that the assessee has received interest income of ` 3,06,548 from Central Bank of India, whereas, it has shown interest income of ` 2,03,228. In response to the query raised by the Assessing Officer, it was submitted by the assessee that the Bank has wrongly shown the differential interest amounting to ` 1,03,320 on which the assessee has not claimed TDS. The Assessing Officer, however, did not accept the explanation of the assessee and added back the amount of ` 1,03,320.
Learned Commissioner (Appeals) after considering the submissions of the assessee directed the Assessing Officer to make further enquiry and give a reasonable opportunity to the assessee to explain its case and thereafter decide the issue as per the provisions of the Act.
Having heard the parties and perused the material on record, we do not find any infirmity in the decision of the first appellate authority on this issue. Therefore, the ground raised is dismissed.
12 M/s. Smita Conductors Ltd.
Ground no.5 being general in nature does not require any adjudication.
In the result, assessee’s appeal is partly allowed for statistical purposes.
To sum up, assessee’s appeal in ITA no.444/Mum./2015 is partly allowed for statistical purposes, Revenue’s appeal in ITA no.189/Mum./ 2015 is dismissed and assessee’s appeal in ITA no.445/Mum./2015 is partly allowed for statistical purposes. Order pronounced in the open Court on 31.01.2018