M/S. BHASKAR INDUSTRIES PRIVATE LIMITED (FORMERLY KNOW AS BHASKAR INDUSTRIES LIMITED),BHOPAL vs. THE ACIT 1(2), BHOPAL

आदेश /O R D E R

PER O.P. MEENA, ACCOUTANT MEMEBR. These cross appeals filed by the assessee and the

Revenue are directed against the order of ld. Commissioner of

Income-tax (Appeals)-I, Bhopal [hereinafter referred to as the

CIT(A)] dated 11.12.2013 and pertain to assessment year

2010-11 as against appeal decided in assessment order

passed u/s 143(3) of the Act dated 25.02.2013 of Additional

CIT, Range I, Bhopal [hereinafter referred to as the AO].

addition of other expenses as disallowed by the AO

u/s 14A of the Act by applying Rule 8D of Income

Tax Rules for Rs. 46,58,063/-.

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disallowing the depreciation of Rs. 3,73,721/-.

no.2, hence, the same is dismissed as not pressed.

which ground no.2 is taken as additional ground of appeal :-

whether the CIT(A) was justified in not providing the

opportunity of being heard to the AO before

admitting the additional evidence.

the ld. CIT(A) has erred in deleting the amount of

Rs. 3,89,68,475/- which was disallowed by the AO

treating as expenditure in relation to exempt income

u/s 14A.

these appeals by this common order for the sake of

convenience.

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Private Limited Company engaged in the business of

manufacturing of yarn, fabric and dyed fabric. The assessee

had furnished its original return of income for A.Y. 2010-11 on

24.09.2010 declaring total income at Rs. 87,68,157/-. The

assessee had shown business income of Rs. 2,08,38,726/-

which was set off against brought forward unabsorbed

depreciation and had offered long term capital gains of Rs.

87,68,157/- to tax in the return of income. The case was

selected for scrutiny by issuing notice u/s 143(2) of the Act

and the assessment u/s 143 was completed on 25.02.2013

determining taxable income at Rs. 4,39,57,962/-. The

Assessing Officer noticed from the balance sheet that the

assessee had shown investment of Rs. 93,16,12,682/- as on

31.03.2010 in equity shares of various companies. Out of this,

major investment of Rs. 91,16,47,192/- had been made in the

equity shares of United Textiles Mills Limited. The assessee

had shown dividend of Rs. 93,42,585/- received from such

companies, which was claimed as exempt from tax in view of

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provisions of Sec 10(34/35) of the Income-tax Act, 1961. The

Assessing Officer show caused the assessee as to why suitable

disallowance not be made in view of the provisions of Section

14A of the I.T. Act read with Rule 8D of I. T. Rules, 1962. The

assessee submitted the explanation, but the Assessing Officer

did not accept the explanation of the assessee. The Assessing

Officer made the disallowance to the extent of Rs.

4,36,26,358/-. However, the ld. CIT(A) confirmed the addition

to the extent of Rs. 46,58,063/-.

ld. CIT(A) has wrongly confirmed the addition of other

expenses as disallowed by the Assessing Officer u/s 14A of the

Act by applying Rule 8D of Income-Tax Rules for Rs.

46,58,063/-. The ld. Authorized Representative urged that the

addition should be deleted.

ld. CIT(A) has erred in deleting the amount of Rs.

3,89,68,475/- which was disallowed by the Assessing Officer

treating as expenditure in relation to exempt income u/s 14A

I.T.A.Nos.68 & 194/Ind/2014 A.Y.2010-11 Page 6 of 11 Bhaskar Industries P.Ltd., Bhopal

of the Act. The ld. CIT DR also contended that the proper

opportunity of being heard to the Assessing Officer was not

given before admitting the additional evidence. The ld. CIT DR

urged that the addition may be sustained.

through the orders of the lower authorities, and perused the

material available on record. The expenditure incurred in

relation to earning such exempt income is not quantified

during the course of assessment proceedings. We find that

the claim of the assessee that no expenditure has been

claimed has not been examined by the AO as he had made

disallowance by applying rule 8D of Income Tax Rules, 1962 .

We find that the Hon Delhi High Court in the case of ACB

India (2005) 374 ITR 108 [Del.] wherein the Hon'ble High

Court has laid down certain principle and procedure to be

followed while calculating the disallowance u/s.14A of the Act.

The relevant extract of said decision is reproduced as under:

“7. The question of law urged on behalf of the assessee is whether the decision of the Income-tax Appellate Tribunal as to the disallowance under section 14A of the Income-tax Act, 1961, is in error of

I.T.A.Nos.68 & 194/Ind/2014 A.Y.2010-11 Page 7 of 11 Bhaskar Industries P.Ltd., Bhopal

law in the circumstances of the case. For the assessment year 2008-09, the assessee—which is mainly engaged in the business of coal preparation, i.e., beneficiation of coal, transportation, loading of coal and related activities had reported a tax exempt income to the tune of Rs. 18,26,360 amongst other heads of income. The Assessing Officer added back Rs. 19,96,242 under section 14A. While doing so, the Assessing Officer applied rule 8D by taking into consideration the total quantum of interest other than that invested under section 14A in terms of rule 8D and arrived at the said figure after multiplying it with the result of the average value of investments and over average value of assets derived by him. He thus determined the disallowance of Rs. 19,96,242. The Commissioner of Income-tax (Appeals) went into the record and found that the amount of investment attributable to dividend as on March 31, 2008, was Rs. 3,53,26,800, which constituted less than 1 per cent. of the total scheduled funds. He, however, accepted the basis of calculation applied by the Assessing Officer and directed a disallowance of .05 per cent. of the amount determined to be average investment. The Income- tax Appellate Tribunal to which the Revenue appealed, restored the Assessing Officer's determination holding it to be a true calculation in terms of rule 8D. It is argued by the assessee that since the Commissioner of Income-tax (Appeals) correctly noted the facts as to the value of the investment in tax exempt investment and at the same time noticed that the ultimate result on an application of .05 per cent. disallowance would be the same. Counsel for the Revenue, on the other hand, submitted that given the determination of average value of investment, the Assessing Officer had no choice but to apply rule 8D(2) in view of the mandate of section 14A which required him to apply the prescribed method of determining disallowance.

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The facts, as disclosed by the Assessing Officer, who expressed his opinion that the claim of the assessee for no disallowance was warranted since no expenditure was incurred had to be rejected. Therefore, the first condition for application of section 14A in this case was fulfilled. In such eventuality the Assessing Officer is required by the mandate of rule 8D to follow rule 8D(2). Clauses (1), (2) and (3) detail the methodology to be adopted. Clauses are of importance, they read as follows :

"8D. Method for determining amount of expenditure in relation to income not includible in total income.-(1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with-

(a) the correctness of the claim of expenditure made by the assessee ; or

(b) the claim made by the assessee that no expenditure has been incurred,in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2).

(2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely :-

(i) the amount of expenditure directly relating to income which does not form part of total income ; (ii) in a case where the assessee has incurred by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely :-

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A x B

__

C Where A = amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year ;

B = the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance-sheet of the assessee, on the first day and the last day of the previous year ;

C = the average of total assets as appearing in the balance-sheet of the assessee, on the first day and the last day of the previous year ; (iii) an amount equal to one-half per cent. of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance-sheet of the assessee, on the first day and the last day of the previous year. (3) For the purposes of this rule, the 'total assets' shall mean, total assets as appearing in the balance- sheet excluding the increase on account of revaluation of assets but including the decrease on account of revaluation of assets."

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done so to substitute the figure of Rs. 38,61,09,287 with the figure of Rs. 3,53,26,800 and, thereafter, arrive at the exact disallowance of .05 per cent.

the expenditure incurred in relation to exempt income.

Whether the assessee has made investment in shares out of

interest bearing funds. Whether disallowance of expenses of

Rs. 4,36,26,358/- is justified as against the earning of

dividend income of Rs. 93,42,585/-. Therefore, we are of the

opinion that the issue requires re-examination in the lines of

findings of aforesaid decision. Therefore, the grounds of

assessee as well as Revenue’s grounds including additional

ground on this issue are set-aside. Therefore, following the

ratio of above decision, we remit back this issue to the file of

the A.O. to find out whether any expenditure in relation to

exempt income has been claimed in return of income and also

work out investment relating to exempt income and rework the

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disallowance under section 14A Read with Rule 8D if any in accordance with law in the light of above decision. 11. In the result, both the appeals of the assessee and Revenue are allowed for statistical purposes. The order has been pronounced in open court on the 10th January, 2017.

Sd/- Sd/- (डी.ट�.गरा�सया) (ओ.पी.मीना) �या�यक सद�य लेखा सद�य (D.T.GARASIA) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER

�दनांक /Dated : 10th January, 2017.

CPU*