Again sent all Judgments with comments as below each one.
Shah D J
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Section 14A – Investment not resulting in any exempt income cannot be considered for of disallowance under Rule 8D(2)(i)
Definition of 'total income u/s 2(45) refers to section 5 which envisages 'scope of total income'. On a reading of section 5 of the IT Act, it would be evident that as per this section 'total income' is of any previous year and which includes income from whatever source derived which is received or deemed to be received in India in such year by or on behalf of such person or accrues or arises or is deemed to accrue or arises to him in India during such year or accrues or arise to him outside India during such year. Considered in aforesaid context, expression 'total income' referred to in rule 8D(2)(i) cannot be in abstract. It must relate to a previous year income of which is sought to be assessed. Therefore, as a natural corollary it follows that only expenditure directly relating to income which is earned either on receipt basis or on accrual basis and which does not form part of total income of a particular assessment year can be disallowed under clause (i) of Rule 8D(2). Rule 8D(2)(i) does not refer to the investment made by the assessee. On a conjoint reading of clause (i) and clause (iii) of Rule 8D(2), the difference between them is clearly discernible. While clause (i) speaks of disallowance of expenditure directly relating to income which does not form part of total income, clause (iii) provides for disallowance of expenditure of the average 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 first day and last day of the previous year. Therefore, while disallowance of expenditure under clause (i) is related to income earned which does not form part of total income, clause (iii) relates to the average of the value of investment appearing in the balance sheet. On a plain reading of Rule 8D(2) as a whole the legislative intent becomes clear that the disallowance of expenditure contemplated under subrule( i) must relate to the income which does not form part of the total income of that year. Therefore, investment, which has not resulted in any income cannot be considered for the purpose of disallowance under Rule 8D(2)(i). However, while computing disallowance under rule 8D(2)(iii), the average of the total investment of the assessee as appearing in the balance sheet on the first day and last day of the year irrespective of the fact whether it has yielded income or not can be considered for the purpose of disallowance. The use of the words does not or shall not in Rule 8D(2)(iii) connotes that income not only does not form part of total income during the year but it also shall not form part of total income at any time. Had it been the intention of the Rule framing authorities to disallow under rule 8D(2)(i) expenditure relating to total value of investment or income which is not earned during the relevant previous year, then, they would have used the expression 'does not or shall not form part of total income' as appearing in rule 8D(2)(iii) instead of words 'does not form part of total income'. That being the case, AO cannot disallow expenditure relating to investment which has not yielded any exempt income during the previous year relevant to the assessment year under dispute. Therefore, we direct the AO to disallow the expenditure relating to investments resulting in income earned/accrued which does not form part of total income of the impugned assessment year.However, so far as AO's computation of expenditure to be disallowed under rule 8D(2)(iii), the same in our view, is in conformity with Rule 8D(2)(iii), hence, do not call for any interference.
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Section 147 – For Reopening Reasons to believe must be based on new, "tangible materials"
The assessee argues that the expression "reasons to believe" under Section 147 refers to objective circumstances. In the present case, the assessment was completed under Section 143 (3) after notice was issued under Section 142 (1) was issued and explanation sought in respect of all relevant matters. The assessee could not be faulted for the omission to discuss the materials on record. Learned counsel stressed that "reasons" were to be on the basis of "tangible materials" which must be in possession of the revenue, which alone can result in a valid re-opening. There was no such tangible material; the AO, argued counsel, acted without any jurisdiction in merely seeking to revisit the matter, which in effect amounts to a review or an impermissible change of opinion. Learned counsel relied on CIT, Delhi v. Kelvinator of India Ltd., (2010) 2 SCC 723 and CIT-V v. Orient Craft Ltd., [2013] 354 ITR 536 (Delhi).
The foundation of the AO's jurisdiction and the raison d'etre of a reassessment notice are the "reasons to believe". Now this should have a relation or a link with an objective fact, in the form of information or facts external to the materials on the record. Such external facts or material constitute the driver, or the key which enables the authority to legitimately re-open the completed assessment. In absence of this objective "trigger", the AO does not possess jurisdiction to reopen the assessment. It is at the next stage that the question, whether the re-opening of assessment amounts to "review" or "change of opinion" arises. In other words, if there are no "reasons to believe" based on new, "tangible materials", then the reopening amounts to an impermissible review. Here, there is nothing to show what triggered the issuance of notice of reassessment – no information or new facts which led the AO to believe that full disclosure had not been made. The impugned notice, the AO's order rejecting the objections, and the arguments of the Revenue nowhere indicate how the AO was impelled to seek re-opening of the assessee's case, as distinguished from the several other completed assessments. . For these reasons, this Court is of the opinion that the impugned reassessment notice cannot be sustained.
Penalty cannot be levied merely because an amount is not allowed or taxed as income
Hon'ble Supreme Court in the case of M/s Hindustan Steel Ltd. vs State of Orissa (1972) 83 ITR 26(SC) and decision of Hon'ble High Court of Delhi in Escorts Finance Ltd. (2009) 226 CTR (Del) 105 wherein it was held that where facts are clearly disclosed in the return, penalty cannot be levied merely because an amount is not allowed or taxed as income.
Turning to the facts and circumstances of the present case, admittedly, the assessee made claim of deduction u/s 80HHC of the Act which was reduced during the reassessment proceedings finalized u/s 263/143(3) of the Act and a substantial part of the claim of the assessee for deduction u/s 80HHC of the Act was reduced and the AO held that the assessee was entitled to claim deduction u/s 80HHC of the Act of Rs.25,13,742 or against the deduction of Rs.58,00,945 as claimed by the assessee in its return of income. In this factual matrix, while the AO passed an order of reassessment in pursuance to order of CIT u/s 263 of the Act and on recomputation of deduction, the AO allowed the claim of the assessee for deduction u/s 80HHC Act at a lower figure but even in this situation, it cannot be inferred that the assessee has concealed its particulars of income or has furnished inaccurate particulars of its income. Thus, we come to a conclusion that the CIT was right in following decision of Hon'ble Supreme Court in the case of CIT vs Reliance Petroproducts Pvt. Ltd. (supra) and the CIT deleted the penalty on just and cogent reason because penalty cannot be levied merely because the assessee's claim was not accepted or was not acceptable to the revenue, that by itself would not attract the penalty u/s 271(1)(c) of the Act. Accordingly, we are unable to see any ambiguity, perversity or any other valid reason to interfere with the impugned order and appeal of the revenue being devoid of merits is dismissed.
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Disallowance U/s. 14A cannot exceed expenditure claimed as a deduction
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. As a result,appeal filed by the AO stands dismissed.
Source- ACIT vs. Iqbal M. Chagala (ITAT Mumbai), ITA No. 877/Mum/2013, Date o
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