GEBR PFEIFFER (I) PVT. LTD. Vs. ADDITIONAL COMMISSIONER OF INCOME TAX
LAWS(IT)-2014-5-91
INCOME TAX APPELLATE TRIBUNAL
Decided on May 30,2014

Gebr Pfeiffer (I) Pvt. Ltd. Appellant
VERSUS
ADDITIONAL COMMISSIONER OF INCOME TAX Respondents

JUDGEMENT

A.T.VARKEY,JM. - (1.) THIS is an appeal preferred by the assessee against the order of the ld CIT(A) - XV, New Delhi dated 03.05.2012 for the Assessment Year 2008 -09.
(2.) THE grounds of appeal are as follows: - "1. That the learned Commissioner of Income Tax (Appeals) has grossly erred both on facts and law before passing the impugned order. 2. That the learned Commissioner of Income Tax (Appeals) has grossly erred in not appreciating that before any disallowance can be made under section 14A there should be a nexus between the expenses debited and the exempt income. 3. That the learned Commissioner of Income Tax (Appeals) has grossly erred in not appreciating that the assessee had not incurred any expenses for earning the exempt income which was purely from dividend income and no expenses has been incurred hence there was no occasion for disallowance of expenses. 4. That the appellant seeks to alter, modify and add any of the ground as the case may be."
(3.) APROPOS disallowances made u/s 14A of the Income Tax Act, 1961 (hereinafter 'the Act'). Brief facts of the case is as follows. The assessee company is engaged in the business of design, engineering, supply of machinery and spares and supervision of erection and commissioning of grinding plants using MPS Vertical Roller Mills or Cement and similar industries. The assessee filed its return of income declaring total income at Rs. 33,36,01,100/ - on 24.09.2008. The same was processed u/s 143(1). The case was selected for scrutiny assessment. During the course of scrutiny assessment the AR has produced the books of account which have been examined on test check basis. Since the assessee in its return of income has declared a dividend income of Rs. 2,71,83,864/ - which has been claimed as exempt, the assessee was asked to explain as to why expenses incurred for earning dividend income not be disallowed as per the provision of section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (hereinafter 'the Rules'). Pursuant to the said query of the Assessing Officer the assessee replied that Rule 8D is not applicable since there is no nexus of expenses debited to profit and loss account and the exempt income and therefore the provision of Section 14A read with Rule 8D are not applicable. It was also submitted by the assessee before the Assessing Officer that the company had not incurred any expenses for earning exempt income; And the exempt income is only in the form of Dividend from Mutual Funds and the Mutual Funds are not purchased from any borrowed fund on which any interest is paid and the expenses/ expenditure debited in the profit and loss are in no manner was connected/ incurred with the exempt income and hence, the provision of 14A read with Rule 8D are not at all attracted. It was also submitted before the Assessing Officer that the company has made investment in mutual funds on the basis of advisory services given by the Deutch Bank Investment Advisors; and it was also contended that these services are offered by the Deutch Bank Investment Advisors free of cost to all institutional buyers; and since they (Deutch Bank) will get commission in the event of sale of the said Mutual Fund from the Mutual Fund Company when it is sold meaning that the Deutch Bank's incentive to give free advice to the assessee is that it will ultimately receive commission when the mutual finds are sold. It was also submitted that the Deutch Bank did not charge any fees for its advise. The Assessing Officer did not accept this reply of the assessee and held that there are always some expenses related to earning of an income, accordingly he held that as per clause (iii) of sub -rule (2) of Rule 8D, an amount i.e. one -half percent 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, is to be disallowed. And the Assessing Officer computed the disallowance Rs. 13,82,741/which was added back to the total income of the assessee.;


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