High Court Of Delhi
ACB India Ltd. vs. ACIT
Section 14A
Assessment year 2008-09
S. Ravindra Bhat And R.K. Gauba, JJ.
IT Appeal No. 615 Of 2014
CM Nos. 16296 & 16297 Of 2014
March 24, 2015
JUDGMENT
CM No. 16296 of 2014
S. Ravindra Bhat, J. – Exemption is allowed subject to all just exceptions.
2. The application is disposed of.
CM No. 16297 of 2014
3. For the reasons mentioned in the application the delay in refiling the appeal is condoned.
4. The application is disposed of.
ITA No. 615 of 2014
5. Admit.
6. Mr. N P Sahni, advocate, accepts notice.
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 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., benefication 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. 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 expenditure 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 :—
     B
A X ——-
     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.”
8. The Assessing Officer, instead of adopting the average value of investment of which income is not part of the total income, i.e., the value of tax exempt investment, chose to factor in the total investment itself. Even though the Commissioner of Income-tax (Appeals) noticed the exact value of the investment which yielded taxable income he did not correct the error but chose to apply his own equity. Given the record that had to be 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.
9. In view of the above reasoning, the findings of the Income-tax Appellate Tribunal and the lower authorities are hereby set aside. The appeal is allowed and the matter is remitted to work out the tax effect to the Assessing Officer who shall do so after giving due notice to the party.
[Citation : 374 ITR 108]
