ITAT decisions on interpretation of section 14A & Rule 8D holding where assessee suo motto disallowed/not claimed direct expenses for share activity like demat, STT and Portfolio management expenses no mechanical application of rule 8D/section 14A; Kol ITAT relying on Goa bench Sesa Goa deleted 14A disallowance; Chennai ITAT holding Special bench Chemivest overruled by high court decisions that where no exempt income no disallowance u/s 14A & 8D; AO mechanical reliance on rule 8D jettisoned; Pune ITAT on mortgaged property not includible for wealth tax u/s 2(m); Share activity business or investment; Luck ITAT on direct reopening on investigation wing report rejected and self assessment tax penalty u/s 140A & sec.221 not attracted if all tax paid under valid revised return;
Kapil Goel
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH “A”, PUNE Date of Pronouncement : 31-07-201\
Mrs. Sangita Manoj Biyani
Held : properties mortgaged to the bank cannot be held as assets belonging to the assessee u/s 2(m) of Wealth tax law.
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH “A”, PUNE ITA No.1645/PN/2012
(A.Y. 2008-09)
Shri Indrakumar Mutha Date of pronouncement : 31.07.2014
Held
From the above it is obvious that the main source of income is
from investment activity. The entire investment in the shares is as
evident from the balance sheet is held out of own funds and there
are no borrowed funds utilized for making investment in shares.
The basic intention was to acquire shares as an investment and
the shares were held for a reasonable period of time. The assessee
purchased the shares as an investment and subsequently when he
noticed that there is surplus on selling of these shares held as
investment decided to sale these shares as a normal investor
normally does. This could not be treated as business activity
IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI Shri Dhanji Gala,
Assessment Year : 2006-07./I.T.A. No.2617/Mum/2010 Date of Pronouncement : 13.8.2014
In view of the foregoing discussions, we are of the view that the penalty
u/s 271(1)(c) is not levy-able merely on the reasoning that the assessee has
agreed for assessment of the loan amount as his income
Section 14A/rule 8D updates
IN THE INCOME TAX APPELLATE TRIBUNAL , ‘B’ BENCH, CHENNAI Mr . M.Baskaran ./I .T.A.No.1717/Mds/2013Assessment Year : 2009-10 /Date of Pronouncement : 31st July, 20014
Counsel for the assessee submits that assessee has
not received any exempt income and in the absence of the
assessee receiving any exempt income, there is no
justification in deriving expenses attributable for earning
income which is not received by the assessee. He places
reliance on the recent decision of the Hon’ble Allahabad
High Court in the case of CIT Vs. M/s. Sivam Motors Pvt.Ltd.
in I.T. Appeal No.88 of 2014 dated 5.5.2014 for the
assessment year 2008-09, the decision of the Hon’ble
Gujarat High Court in the case of CIT Vs. Corrtech Energy
Pvt. Ltd. in Tax Appeal No.239 of 2014 dated 24.3.2014 for
the assessment year 2009-10 and the decision of Hon’ble
Bombay High Court in the case of CIT Vs. Delite Enterprises Tax Appeal No.110 of 2009 dated 26.2.2009. Counsel for
the assessee submits that even otherwise the Assessing
Officer should have excluded share application money in
various companies which will not produce any exempt
income. He submits that if such share application money is
excluded the disallowance under section 14A of the Act will
works out to `5,61,125/- as against disallowance of
`19,28,666/- made by the Assessing Officer. For the
proposition that share application money is not investment for
the purpose of section 14A, he places reliance on the
decision of the Tribunal in the case of Rainy Investments Pvt.
Ltd. Vs. ACIT in I.T. Appeal No.5491/Mum/2011 dated
16.1.2013.
Heard both sides. Perused orders of lower authorities
and submissions made by the assessee and the decisions in
relied on. No doubt in the decision of the Special Bench of
Delhi Tribunal in the case of Cheminvest Ltd. Vs. ITO (supra),
the Special Bench held that disallowance under section 14A
can be made even in the year in which no exempt incomehas been earned or received by the assessee. This decision
of Special Bench of the Tribunal has been impliedly overruled
by the decisions of High Courts in the following cases:
the case of M/s. Shivam Motors P.Ltd. (supra),
before the Hon’ble Allahabad High Court; The Gujarat High Court in the case of CIT Vs. Corrtech Energy Pvt.Ltd.(supra); Similar view has been taken by the Hon’be Punjab &
Haryana High Court in the case of CIT Vs. M/s. Lakhani
Marketing Incl. in ITA No.970 of 2008 dated 2.4.2014
In the case of CIT Vs. Winsome Textiles Industries Ltd.
(319 ITR 204) the Hon’ble Punjab & Haryana High Court held
that when there is no claim for exemption of income in such
situation section 14A has no application. Respectfully
following the above decisions, we delete the disallowance
made under section 14A as the assessee has not earned /
received for exempt income during the previous year relevant
to the assessment year under appeal.
IN THE INCOME TAX APPELLATE TRIBUNAL
‘A’ BENCH : CHENNAI M/s Global Calcium Pvt. Ltd
125 & 126, Sipcot Industrial
Complex
Hosur 635 126
Vs. The Dy. Commissioner of
Income-tax
/I.T.A.No.2255/Mds/2013 Date of Pronouncement : 22-07-2014
In assessment order, the Assessing Officer has
not recorded any dissatisfaction towards the assessee’s claim based
on its books to this effect. He seems to have proceeded on a mere
inference that some indirect expenditure is embedded towards
maintaining such investments amounting to crores of rupees. Coupled
with this, the Assessing Officer refers to assessee’s common pool of
interest and interest free funds without any details thereof. We find
from section 14A(2) that in arriving at such a dissatisfaction over an assessee’s claim of not having incurred any expenditure relatable to its
‘exempt’ income in books of account, the concerned Assessing Officer
has to take into account the said books and then only, he can resort to
computation of such expenses under Rule 8D. In this case, the
Assessing Officer has only drawn an inference that some indirect
expenditure is always involved in supervision of such huge
investments. And that too, without even specifically stating anything
regarding the entries in the assessee’s books. In our view, this
approach is nowhere a part of the relevant statutory provision in
section 14A(2) of the Act. So, both the lower authorities have wrongly
made the disallowance in question of `11,92,282/- u/s 14A r.w. rule
8D. The same stands deleted.
INCOME TAX APPELLATE TRIBUNALMUMBAI BENCHES “I” MUMBAI Iqbal M Chagala,Palloni Mansion Date of Pronouncement :30/07/2014 ITA No. 877/Mum/2013 Assessment Year 2009-10
We have heard the rival submission and perused the material before us.We find from the audit report that the expenses in respect of exempt income was shown at Rs. Nil,that the assessee had debited direct expenses on account of dematerialisation and STT in the capital account and in the profit and loss account,that AO had presumed that the assessee had must have incurred some expenditure under the heads salary,telephone and other administrative charges for earning the exempt income. It is further found that the total expenditure claimed by the assessee for the year is about 13 lakhs and the AO had made a disallowance of about Rs.16 lakhs. He has just adopted
the formula of estimating expenditure on the basis of investments. But,the justification for calculating the disallowance is missing. The assessee had not claimed any expenditure in its P &L account, so,it the onus was on the AO to prove that out of the expenditure incurred under various heads were related to earning of exempt income. Not only this he had to give the basis of such calculation. In any manner disallowance of Rs.16.35 lakhs,as against the total expenditure of Rs.13 lakhs (app.) claimed by the assessee in P & L account,is not justified. Provisions of Rule 8D cannot and should not be applied in a mechanical way. Facts of the case have to be ananlysed before invoking them. We are of the opinion that the AO had not deliberated upon the facts of the
case before making the disallowance, whereas the FAA has decided the issue on merits. Therefore ,confirming his order, we decided the effective ground of appeal against the AO.
IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH “A”, KOLKATA ITA No.1850/Kol/2012
Assessment Year : 2009-10
(APPELLANT ) - (RESPONDENT)
Linear Commercial Pvt. Ltd
Date of Pronouncement : 24.07.2014.
have heard the rival submissions and carefully considered the same. We
noted that in this case the assessee while computing the taxable income has disallowed
a sum of Rs.3,81,969/- u/s 14A of the IT Act. The AO did not agree with the assessee
but without recording his satisfaction with reference to the accounts of the assessee
and how he is not satisfied with the correctness of the claim of the assessee in respect
of the expenditure in relation to the dividend income applied Rule 8D of IT Rules and
computed the disallowance in accordance with Rule 8D. Section 14A(2) requires the
AO to give a finding in respect of its non satisfaction for incorrect claim of the
assessee with reference to the books of account. The AO, in our opinion, cannot
directly apply Rule 8D. Our aforesaid view is duly supported by the decision of ITAT
Panaji Bench in ITA NO.72&85/PNJ/2012 in the case of Sesa Goa Ltd, Panaji,Goa
Ltd., Panaji,Goa vs JCIT.. Respectfully following the decision of ITAT, Panaji Bench in the case of Sesa
Ltd, Panaji, Goa (Supra) we allow ground nos. 1 to 3 of assessee’s appeal
IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI
I.T.A. No. 5736/Mum/2012 Assessment Year :2008-09) 3DPLM Software Solutions Ltd., Date of Pronouncement : 31 .7.2014
Now the only remaining ground relates to the computation of disallowance
u/s 14A of the Act. The Ld Counsel submitted that the assessee had invested its
surplus funds in the units of mutual funds in order to optimize its income. He
submitted that the AO has disallowed only general expenses in terms of Rule
8D(2)(iii) of the IT Rules. He submitted the assessee did not incur any expenses
in earning the dividend income and hence no disallowance is required to be
made. We also heard Ld D.R on this issue, who supported the order of Ld
CIT(A). On a perusal of the orders passed by the tax authorities, we notice that
the quantum investments made by the assessee has gone up at the end of the year, which we have already noticed. Further, the Ld CIT(A) has noticed that
the assessee has liquidated part of investments also during the instant year.
Hence, we notice that the assessee has carried out activities in relation to the
investments. At this point, it is pertinent to note the decision rendered by
Hon’ble Delhi High Court in the case of Maxopp Investment Ltd Vs. CIT (347 ITR
272), wherein the Hon’ble Delhi High Court has expressed the view that the
assessing officer has to first reject the claim of the assessee with regard to the
extent of expenditure by having regard to the accounts of the assessee and such
rejection must be for disclosed cogent reasons. It is only then that the question
of determination of expenditure u/s 14A by the assessing officer would arise. In
the instant case, we notice that the claim of the assessee is not rejected by the
assessing officer after having regard to the accounts of the assessee. Hence, we
are of the view that the AO was not right in applying the provisions of Rule
8D(2)(iii) of the IT rules in the instant case. At the same time, we have noticed
that the assessee has carried out investment activities of purchasing, liquidating
etc. and has also received dividend income. Hence, the contention of the
assessee that it did not incur any expenditure is not acceptable to us also.
Hence, we are of the view that it would be proper to make disallowance of a
portion of general expenses in terms of of sec. 14A of the Act. Accordingly, we
are of the view that a round sum disallowance of Rs.25,000/- may be made to
take care of sec. 14A of the Act and in our view, the same would meet the ends
of justice. We order accordingly. The order of Ld CIT(A) stands modified
accordingly.
Others
IN THE INCOME TAX APPELLATE TRIBUNAL
LUCKNOW BENCH “B”, LUCKNOW ITA No.62/LKW/2013
Assessment Year:1999-2000 M/s Specialities Aluminium Grills
Pvt. Ltd. Date of pronouncement: 08 08 2014
As per provisions of section 147 of
the Act, the Assessing Officer is required to form a belief on the
tangible/valuable material available before him. The reopening cannot be
done on the basis of the information received from a third agency. The
Assessing Officer is required to apply his mind on whatever information
received from the third agency and to verify the facts with the return of
income of the assessee in order to form a belief that the income chargeable
to tax has escaped assessment. But in the instant case, the Assessing
Officer has not applied his mind and on the basis of the information
received, he reopened the assessment which is not proper in the light of
the judicial pronouncements referred to by the ld. counsel for the assessee
before the ld. CIT(A).
IN THE INCOME TAX APPELLATE TRIBUNAL
LUCKNOW BENCH “B”, LUCKNOW ITA No.531/LKW/2013
Assessment Year:2008-09
ACIT-6
Kanpur
v. M/s Shri Shakti Credits Ltd Date of pronouncement: 08 08 2014
Having carefully examined the orders of the lower authorities, we
find that the original return was filed in time i.e. before the due date of
filing of return under section 139(1) of the Act. Undisputedly, at the time
of filing of the original return, the admitted tax liability was not paid. The
original return was revised by filing a revised return under section 139(5) of
the Act and the same was accepted by the Assessing Officer for completing
the assessment.
8. Since the controversy revolves around the applicability of
provisions of section 140A(3) of the Act for imposing penalty for nonpayment
of admitted tax liability while filing the original return of income….
From a bare reading of the aforesaid provisions of section 140A of
the Act, we find that when the return is filed under section 139 of the Act
and if any assessee fails to pay the whole or any part of such tax or interest
or both, he/she shall be deemed to be in default in respect of the tax or
interest or both remaining unpaid and will suffer penalty as per law. Under
sub-section (1) of section 140A of the Act, the filing of return is to be done
under section 139 of the Act. It has not been identified whether the return
is to be filed under section 139(1) or 139(5) of the Act. Once the return is
filed under section 139 of the Act and admitted tax is not paid, assessee
would suffer penalty under section 140A(3) of the Act
The revised return also substitutes the
original return, as the assessment was framed on the basis of the revised
return. Therefore, the assessee has filed the return under section 139 of
the Act and at the time of filing of the return, the admitted tax liability was
also paid.
Provisions of sub-section (3) of section 140A of the Act can only
be invoked where the assessee has not paid admitted tax liability while
filing the return under section 139 of the Act. Since the admitted tax
liability has been paid at the time of filing the return under section 139(5)
of the Act, the provisions of sub-section (3) of section 140A of the Act cannot be invoked for imposing penalty under section 140A of the Act for
non-payment of tax or interest on the income declared in the return.
Therefore, we are of the considered view that in such circumstances, the
penalty under section 140A(3) of the Act cannot be levied. We have also
carefully perused the order of the ld. CIT(A) and we find no infirmity
therein. Accordingly we confirm the same.