e-news letter august 2019 - jalgaon-icai.orgjalgaon-icai.org › newsletter › 33.pdf · 10-08-19...

EDITORIAL BOARD

NEWSLETTER

COMMITTEE

CA PRAVIN ACHALIYA –

CHAIRMAN

CA SMITA BAFNA –

EX-OFFICIO

CA VICKY BIRLA –

EX-OFFICIO

CA DHARAM SANKHLA –

MEMBER

CA DEVESH KHIVSARA –

MEMBER

CA VINAY KAWDIA –

MEMBER

CA DARSHAN JAIN –

MEMBER

JALGAON BRANCH

MANAGING COMMITTEE

CA SMITA BAFNA –

CHAIRPERSON

CA SAGAR PATNI –

VICE-CHAIRMAN

CA PRASHANT AGRAWAL –

TREASURER

CA SAURABH LODHA –

SECRETARY

CA VICKY BIRLA –

MEMBER

RCM CA UMESH SHARMA –

BRANCH NOMINEE

02 MEMORIES GALORE

04 CHAIRPERSON’S

COMMUNICATION

06 COMPLIANCE

CALENDAR

08 TECHNO TIP

10 GLIMPSES OF

CULTURAL EVENT

11 PRICE PATTERNS

IN SHARE MARKET

- 3

14 DISALLOWACE U/S

14A / RULE 8D

OF THE INCOME

TAX ACT, 1961

25 HAPPINESS

CALENDAR

26 MEMORIES GALORE

JALGAON BRANCH OF WIRC OF The Institute of Chartered Accountants of India

(Setup by an Act of Parliament)

E-NEWS LETTER AUGUST 2019

MEMORIES

GALORE

Inauguration of Walkathon on CA

Day by Past Chairman CA N. S.

Doshi.

Walkathon on the theme - Walk for

Life.

Tree Plantation by Students and

Members.

Tree Plantation by Students and

Members.

JALGAON BRANCH OF WIRC OF ICAI | E-NEWSLETTER | AUGUST 2019 | PAGE NO. 2

Health Checkup Camp supported

by Nipun Pathology - Dr Rahul

Mayur.

Flag Hoisting by Honourable

Additional SP Shri Lohit Matani.

Proud members of Jalgaon

Branch on the occasion of Flag

Hoisting.

Felicitation of senior member CA

Satish Naik by Chief Guest Shri

Lohit Matani.

Lecture on Heart care and

Disease Prevention by famous

Cardiologist Dr Paresh Doshi.

Proud members of Jalgaon

Branch on the occasion of Flag

Hoisting.


CHAIRPERSON’S

COMMUNICATION

Dear

Professional

Colleagues,

With warm Regards

CA Smita Bafna Chairperson:

Jalgaon Branch of WIRC of

ICAI

E-mail:

[email protected]


“Integrity is fundamental to being men, Integrity means being

truthful. But it also means accepting responsibility and

honoring commitments and covenants.” This quote by D.

Todd Christofferson describes the principles which are

imbibed in Chartered Accountants. The beauty of our

profession lies in its structure which results in Integrity,

Independence and Inspiration towards excellence.

The Platinum jubilee celebration was a wonderful event and

we had organised various activities throughout the week. The

celebrations covered activities relating to health, environment,

fun with family and service to the society. CA Day was

celebrated in the auspicious presence of Additional

Superintendent of Police, Shri LohitMatani. Various activities

like Walkathon, Blood Donation Camp, Health Check up

Camp, Organ Donation Camp, Tree Plantation, Career

Counselling Programme, GST Session in Dr. Annasaheb G D

Bendale Girls College were conducted. Educational kit,

sponsored by our past Chairman CA Ajay Jain, were

distributed to the differently abled students. A special session

was conducted on Heart Care and Disease Prevention by Dr.

Paresh Doshi who gave practical demonstration and valuable

tips for action to be taken in case of a cardiac arrest.

With the motive to safeguard the environment, Bharari

Foundation, one of the charitable trust approached us to

participate in their drive for plantation of trees. We planted

trees in the area near the branch. Shri B N Patil, CEO of Jilha

Parishad followed by Mr. Adarsh Kothari and Mr. Sapan

Jhunjhunwala graced the occasion. Shri B N Patil in his

interaction with the students tried to explain the importance of

preservation of trees.

24th July, 2019 was celebrated as 159th Income Tax Day. The

Managing Committee visited the department and

congratulated the authorities. Our members also actively

participated in the Blood Donation Camp organized by the

Income Tax Department.


Internal Audit is a emerging area of practice these days. It was a great pleasure to host

Seminar on Internal Audit organsied by the Internal Audit Standards Board, ICAI. We

were blessed to have CA Murtaza Kachwala, Regional Council Member and CA Kalpesh

Panchal from Mumbai to guide us on the subject. The session was very interactive and

was attended by members in business and industry as well.

In the forthcoming month, we shall be hosting 2 days conference at Shirdi “Vibrant”

organized by the Capacity Building Committee jointly with Ahmednagar, Dhule, Nasik,

Nanded, Pimpri Chinchwad, Pune, Solapur and Satara branches on 8th and 9th August,

2019. Also, we shall be glad to attend Regional Conference “AWAKE” to be held on 9th

and 10th August, 2019.

We are planning to start a group discussion activity to provide a better learning

opportunity to our members in local practice. Members can raise their queries and discuss

thoroughly with the local experts. I request members to participate in large numbers and

get the benefit.

COMPLIANCE

CALENDAR


A. Due dates for Compliances under GST

31-08-19 GSTR 9 – The Most Comprehensive Annual Return / Statement for FY 17-

18 by ALL registered persons.

31-08-19 Annual Return for FY 17-18 For Composition Tax Payer in Form GSTR-9A.

31-08-19 GSTR-9C – Annual Return for FY 17-18 by registered person whose Annual

Turnover for FY 17-18 is above Rs. 2 Cores (Annual Return + Audited

Annual Accounts + Reconciliation Statement in GSTR-9C).

31-08-19 Filing of ITC-04 for July 17 to March 19 for filing the details of goods or

capital goods sent to job worker and received back.

11-08-19 Due date for filing GSTR-1 for m/o July 19 -> Applicable for taxpayers with

Annual Aggregate turnover Above Rs. 1.50/- Crore or opted to file monthly

Return (Rs. One Crore Fifty Lacs) only. Notification No. 44/2018 – Central

Tax.

10-08-19 Due date for filing GSTR-8 (to be filed by the by the e-commerce operators

required to deduct TDS under GST for the m/o July 2019.

20-08-19 Due date for filing GSTR-5 & 5A (to be filed by the Non-Resident taxable

person & OIDAR for the m/o July 19.

13-08-19 Due date for filing GSTR-6 (to be filed by Input Service Distributor for m/o

July 19.

20-08-19 GSTR-3B for the m/o July 19. Pay due Tax till this date.

31-08-19 GSTR-7 (to be filed by the person who is required to deduct TDS under GST

for the month of June 19.

RFD-10 Eighteen months after end of the quarter for which refund is to be claimed

21-08-19 E Way Bill- blocking of e-way bills on non-filing of returns for two

consecutive tax periods, to be brought into effect from 21 August 2019.

31-08-19 The last date for furnishing statement containing the details of the self-

assessed tax in FORM GST CMP-08 for the quarter April, 2019 to June,

2019 (by taxpayers under composition scheme), extended from 31.07.2019 to

31.08.2019.

B. Due dates for Compliances under Income Tax

31-08-19 Annual return of income for the Financial Year 2018-19 (Assessment year

2019-20) for all assessee other than -

(a) corporate-assessee or

(b) non-corporate assessee (whose books of account are required to be

audited) or

(c) working partner of a firm whose accounts are required to be audited or

(d) an assessee who is required to furnish a report u/s 92E.

07-08-19 Due date for deposit of Tax deducted by an assessee other than an office of

the Government for the month of July 19. However, all sum deducted by an

office of government shall be paid to credit of Central Government on same

day where tax is paid without production of an Income-tax Challan.

14-08-19 Due date for issue of TDS Certificate for tax deducted u/s 194-IA (TDS on

Immovable property) in m/o June 19.


14-08-19 Due date for issue of TDS Certificate for tax deducted under section 194-IB

(TDS on Certain Rent payment) in m/o June 19.

15-08-19 Due date for furnishing of Form 24G by an office of Government where TDS

for m/o July 19 has been paid without production of a challan.

15-08-19 Quarterly TDS certificate (in respect of tax deducted for payments other than

salary) for the quarter ending June 30, 2019.

30-08-19 Due date for furnishing of challan-cum-statement in respect of tax deducted

u/s 194-IA in month of July 19.

30-08-19 Due date for furnishing of challan-cum-statement in respect of tax deducted

u/s 194-IB in month of July 19.

C. Due dates for Compliances under ESI, PF Acts

15-08-19 PF Payment for m/o July 19.

15-08-19 ESIC Payment for m/o July 19.

25-08-19 PF Return filling for July 19 (including pension & Insurance scheme forms.

TECHNO

TIP

Hidden Features in Excel:

1. UPPERCASE Spelling check

By default, excel ignores UPPERCASE words in spelling check. To enable UPPERCASE

spelling check, Go to file menu => Options => proofing => when correcting spelling in

Microsoft Office programs => untick the menu Ignore words in UPPERCASE => press ok

=> it will enable spelling check in UPPERCASE.

2. Auto Correct Options

By default, there are many auto correct spelling mistakes in excel. We can add our own

auto correct to create shortcut of daily required words or sentences. Go to file menu =>

Options => proofing => Auto Correct options => click on button “Auto Correct options”

=> add key words at “Replace” e.g. rnp => add complete word or sentence at “With” e.g.

RavindraNamdeoPatil => Click Add to add the auto correct => press ok => again press ok

=> now press rnp in any cell and press space it will auto correct rnp to

RavindraNamdeoPatil => to undo the autocorrect just press Ctrl+Z. it will change

RavindraNamdeoPatil to rnp again.

Note- if you insert auto correct for single word = e.g. ja for jalgaon

Insert in following way => Replace = ja with = jalgaon

While typing in excel use as follows => ja = jalgaon, JA = JALGAON & Ja = Jalgaon

3. Changing Default Font Type and Font Size

Go to file menu => Options => General => When creating new workbook => change font

type at ‘Use this as the default font’ & change font size at ‘Font Size”. You can also select

default view and number of sheets.

4. Iterative Calculations

In Excel, you can reference a cell that contains a formula and use its result in an identical

formula in a different cell. Check the following example.


To enable Iterative Calculations, Go to file menu => Options =>Formulas =>Calculation

Options => Tick at ‘Enable Iterative Calculations’ => Press ok.

5. Ruler Unit for Page Setting

Go to file menu => Options => Advanced => Display => Ruler Unit => Select the

required Unit out of “Default Units, Inches, Centimeters & Millimeters”.

6. Quick Access Toolbar

Quick Access Toolbar is available at the top left corner of the Excel above Ribbon. This

feature is available to keep important buttons at the top of ribbon so that you don’t have to

open ribbon every time. By default, there exists three buttons – Save, Undo & redo.

You can add or remove buttons from quick access toolbar. To Add button – right click the

button in ribbon and select Add to Quick Access Toolbar. You can add button, group &

more button of the group. To Remove button – right click to button in quick access toolbar

and select Remove from Quick Access Toolbar. After inserting the buttons your Quick

Access Toolbar will look like this

7. Enabling Macros

Now a day’s macros are used in most of the Income Tax and GST excel utilities. If the

macros are not enabled in excel macro buttons will not work. To enable macros, follow

given procedure- Go to file menu => Options => Trust Center => Trust Center Settings

=> Macro Setting =>tick at Enable all macros => also tick at Trust access to the VBA

project model => press ok => again press ok. To create our own tab with regularly

required buttons and groups, Go to file menu => Options => Customize Ribbon =>Click

New Tab => Rename Tab => Click New Group => Rename Group => add buttons from

listed button => Press Ok. Your Ribbon with new tab will look like this

Compiled by: CA Ravindra Patil

Email: [email protected]


GLIMPSES OF

CULTURAL EVENT


PRICE PATTERNS

IN SHARE

MARKET - 3

Recap :

Till now we understood following Price patterns:

• Inverted Head & Shoulder (Bullish Pattern)

• Double Bottom (Bullish Pattern)

• Double Top (Bearish Pattern)

In this article we will understand following 2 Price Patterns:

• Upflag (Bullish Pattern)

• Downflag (Bearish Pattern)

1. Upflag (Bullish Pattern) :


Start of Pole High of Flag

Criteria’s for Upflag:

• Upmove

• Consolidation after an upmove (Flag Cloth)

• Last Candle close above consolidation with increased volumes

• Flag Pole = Vertical Distance from Start of Pole to High of Flag

Thus name itself says a flag with up Direction is upflag. With the help of this we can find

out till what price a stock / security / index could reach upwards.

Example: In case of Mahindra Logistics Ltd. an Upflag was formed on 29/03/2019. Let’s

find out target for the same.

(Below Breakout Candle)

Let X =Vertical Distance from Start of Pole to High of Flag

Vertical Distance = 520-454=66.

In the above case Upflag was completed at Rs.520 .

Low of Flag(Below Breakout Candle ) is 485.

Target = Low of Flag below breakout + X

Therefore Target = 485+66=551

Start of Pole High of Flag

Low of Flag Breakout given

Flag of Cloth


On 15th April 2019 Mahindra Logistics made a high of Rs.577.80/- thereby giving a

target of Rs.551.

2. Downflag (Exact Reverse of Upflag):

Criteria’s for Down flag:

• Down Move

• Consolidation after an down move (Flag Cloth)

• Last Candle close below consolidation with increased volumes

• Flag Pole = Vertical Distance from Start of Pole to High of Flag

Thus name itself says a flag with down Direction is down flag. With the help of this we

can find out till what price a stock / security / index could reach downwards.

Timeframe to be considered for above patterns for Achieving Target:

= Total no. of candles from start of pole to last candle

3

Conclusion :

While following the above strategy one must keep a strict Stop Loss according to his risk

appetite as for the success of this ratio other factors such as Nifty 50, Bank Nifty etc.

index must also support.

Down of Flag Start of Pole


Compiled by: CA Siddhesh Bora


DISALLOWANCE

U/S 14A /

RULE 8D OF

THE INCOME

TAX ACT, 1961

1. Backdrop Object of Sec. 14A is to disallow any

expenditure claimed by the assessee if

incurred in respect of exempt income. This

section was introduced to nullify the effect

of below listed decisions in which the SC

had held that in the case of a composite and

indivisible business, which results in

earning of taxable and non taxable income,

it is not permissible to apportion the

expenditure between the two. As a result

the entire expenditure was held to be

allowable.

See

• Rajasthan State Wharehousing Corpn.

V. CIT, 242, ITR, 450 SC.

• CIT V. Maharashtra Sugar Mills Ltd.,

82, ITR, 452.

• CIT V. Indian Bank Ltd., AIR 1965,

SC, 1473.

2. Statutory Provision

Section 14A reads as under

Expenditure incurred in relation to income

not includible in total income.

[(1)] For the purposes of computing the

total income under this Chapter no

deduction shall be allowed in respect of

expenditure incurred by the assessee in

relation to income which does not form part

of the total income under this Act:]

[Provided that nothing contained in this

section shall empower the Assessing

Officer either to reassess under section 147

or pass an order enhancing the assessment

or reducing a refund already made or

otherwise increasing the liability of the

assessee under section 154, for any

assessment year beginning on or before the

1st day of April, 2001.]

[(2) The Assessing Officer shall determine

the amount of expenditure incurred in

relation to such income which does’nt form

part of total income under this Act in

accordance with such method as may be

prescribed, if Assessing Officer, having regard


to the accounts of the assessee, is not

satisfied with the correctness of the claim of

the assessee in respect of such expenditure

in relation to income which does not form

part of the total income under this Act.

The provisions of sub-section (2) shall also

apply in relation to a case where an

assessee claims that no expenditure has

been incurred by him in relation to income

which does not form part of the total

income under this Act.]

3. Method of determin-

ation of expenditure in

relation to income is

prescribed vide rule

8D Rule 8D introduced w.e.f. 24.03.2008

(w.e.f. A.Y. 2008-09), prescribes the

manner of computation of disallowance.

Note that Rule 8D is amended w.e.f.

02.06.2016.

4. This seemingly simple provision has

created lot many controversies though

however the constitutional validity of both

section 14A and Rule 8D has been upheld

by the Bombay High Court in Godrej &

Boycee Ltd. v. DCIT (2010) and Rule 8D is

held to be applicable wef AY 2008-09 only.

The Hon’ble SC has vide its decision in

CIT V. Essar Teleholdings Ltd., (2018)

401, ITR, 455 held that Rule 8D is

prospective w.e.f. A.Y. 2008-09. Upto

A.Y. 2007-08 the disallowance could be

made by the AO on appropriate basis taking

into account the facts of the case.

5. Some of the common issues which have

arisen recently with respect to applicability

or otherwise of this provision are discussed

hereunder. Note that there are also contrary

decision with respect to certain issues. In

such cases only defence the assessee can

take is that view beneficial to him needs to

be followed.

5.1. Whether it will

apply even if there is

no exempt income ? Plain reading of the section clearly there

suggests that there has to be some exempt

income not forming part of Total Income.

Thus in the absence of any exempt income

question of applying this section could not

arise. Recently in Prin. CIT Vs. Oil

Industry Development Board (2019) 262,

Taxman 102, the Hon’ble SC confirmed the

decision of the Delhi High Court in Prin.

CIT V. Oil Industry Development Board

(2019) 103, taxmann.com 325 wherein it

was held that no disallowance u/s. 14A

could be made in the absence of any

exempt income.

See

• CIT V. Chettinad Logistics Pvt. Ltd.,

(2018) 257, Taxmann 2; SC.

• Princ. CIT V. GVK Project and

Technical Services Ltd (2019) 106,

Taxmann.com 181. SC.

Earlier the aforesaid view was upheld inter

alia in following cases.

See

• PCIT V. Caraf Builders, (2019) 414,

ITR, 122, Delhi.

• PCIT V. Ballarpur Ind. Ltd., ITA No.

51 of 2016, Bom.

• Rajmal Lakhichand V. JCIT, (2018) 92

Taxmann.com 94, Pune.

• Redington India Ltd. V. Addl. CIT,

(2017) 392, ITR, 633 Mad.

• Dish T.V. India Ltd., V. ACIT, (2017)

159, DTR, 257 Mumbai, AT.


Note

CBDT vide its circular No. 5 / 2014 dt.

11.02.2014 has taken a contrary view viz

14A is applicable even in the absence of

any exempt income.

Circular though binding upon the assessing

authorities, cannot bind the assessee /

appellate authorities.

Recently the Delhi High Court has in PCIT

V. IL & FS Energy Development Co.

Ltd., (2017), 156, DTR, 89; has held that

the said circular cannot override the express

provision of Sec. 14A/Rule 8D and

concluded that if no exempt income is

earned during the relevant year, no

disallowance could be made u/s. 14A/Rule

8D.

Further as stated earlier, the Hon’ble SC

has also confirmed similar view and as such

the said circular must ber held contrary to

law.

In any case, circulars beneficial to the

assessee are binding upon the AO even if

CBDT ‘s interpretation is against legislative

intent.

See :

• Vodafone Essar Mobile Services Ltd. V

UOI, (2016) 238, Taxmann, 625; Delhi

5.2. Can the AO assume

or deem certain

expenditure to have

been incurred ? No. In order to invoke provisions of Sec.

14A there has to be a direct nexus between

actual expenditure and earning of tax free

income.

See

• Inducto Steel Ltd., V. ACIT, (2017)

165, ITD, 405, Mumbai ITAT.

Contrary view

In M. A. Alagappan V. ACIT (2017) 165,

ITD, 401 Chennai Bench of ITAT has held

that even when no expenditure is incurred

in earning exempt statute has provided for

presumptive expenditure and therefore AO

has to apply Rule 8D.

5.3. Can the

disallowance be more

than the expenditure

claimed?

No. Rule 8D is amended wef 02.06.2016

substituting sub-rule (2) to provide that the

disallowance would not exceed the

expenditure claimed by the assessee.

In my opinion the amended rule should also

apply to pending proceedings in as much as

it only clarifies the pre amended rule.

See

• Pr. CIT v. Empire Package(P) Ltd.

www.itatonline.org, P & H

• Gillette Group India Pvt. Ltd. v. ACIT

(2012) 16, ITR(Triv) 57; Delhi

• CIT v. Hero Cycle Ltd. ((2010) 189,

Taxmann, 50; P & H.

No expenditure incurred, no disallowance.

See

• Torent Power Ltd v. Dy. CIT (2013)

58, SOT, 6 (URO) Ahd

• Justice Sam Bharucha v. Addl. CIT 53,

SOT, 192; Mum

• CIT v. Metalman Auto (P) Ltd. 336,

ITR, 424; P & H

• CIT v. Deepak Mittal (2013) 38;

Taxmann.com, 83 P & H

• B. H. Jain v. Dy. CIT (2015) 173, TTJ,

17, Pune

• CIT v. Glenmark Pharmaceuticals 351,

ITR, 359; Bom

• CIT v. Walfort Shares & Stock Brokers

(P) Ltd. 310, ITR, 421 Bom affirmed

by SC in 326, ITR 1


http://www.itatonline.org/

5.4. Onus to prove

existence of

expenditure vis-à-vis

exempt income. It has been held in below listed cases that

the onus is on the department to prove that

any expenditure was incurred for earning

tax free income.

See

• Maruti Udyog Ltd., V. Dy. CIT, 92,

TTJ,987. Delhi.

• Zuari Ind. Ltd., V. ACIT, 108, TTJ 140,

Mmbail.

• ACIT V. Eicher Ltd., 101, TTJ, 369;

Del. Wimco Seedling Ltd., V. Dy. CIT,

109, TTJ 402, Delhi.

Contrary decision

A contrary view has been taken by Panji

Bench of ITAT in ACIT V. JOE

Marceliinho Mathaias (143, ITD, 132) in

which it has been held that onus lay on

assessee to prove that he had not incurred

any expenditure for earning exempt

income.

5.5. Is it mandatory to hold that some expenditure in relation to exempt income must have been incurred by the assessee every time? Obviously not. However it will all depend

upon the nature of exempt income and other

relevant factors. Some time nature of

income may be such that part of

administrative and general expenses could

be regarded as related to such income. In

such cases on estimated basis some

expenses may be disallowed.

5.6. Can the

disallowance be more

than the exempt

income earned ? No.

Recently the Hon’ble SC has dismissed the

Dept’s SLP against the decision of the P &

H in Prin. CIT V. State Bank of Patiala

(2018) 99, taxmann.com, 285 in which it

was held that disallowance could not

exceed the exempt income.

Also See

• Future Corporate Resources Ltd., V.

CIT, (2017) 158, TR (A) 292, Mumbai.

• K. Ratanchand & Co., V. ITO, (2016)

45, ITR, (Trib) 608, Ahmedabad.

• Sahara India financial Corpn. Ltd. v.

Dy. CIT (2014) 105, DTR, Delhi HC

• Daga Global Chemicals Pvt. Ltd. v.

ACIT, (2016) 46, ITR (Trib) 70,

Mumbai ‘D’ Bench

• Joint Investments (P) Ltd. v. CIT (2015)

372, ITR, 694, Delhi.

• ACIT V. Satishkumar (2018) 172, ITD,

143, JP.

• Aditya Medisales Ltd., V. Dy. CIT

(2019) 176, ITD, 783, Ahd.

5.7. Whether loss or depreciation debited to Profit & Loss Account can be disallowed u/s. 14A ? No. U/s. 14A/Rule 8D only expenditure

which is incurred in relation to any exempt

income alone can be disallowed.

Investment Allowance or Depreciation

(which is also an allowance) is not

expenditure and thus Sec. 14A cannot be

applied.

See

• Navin Bharat Ind. Ltd., V Dy. CIT, 90,

ITD, 1; Mu. Trib.


5.8. Whether Sec. 14A

could be applied when

a deduction u/chapter

VI A is claimed ? Sec. 14A applies only with respect to

exempt income not forming part of Total

Income. Chapter VIA relief is granted by

way of deduction from GTI in respect of

income which is included in the GTI eg.

u/s. 80P.

The answer to the question is therefore No.

See

• CIT v. Kribhco (2012) 349, ITR 618;

Delhi.

Also See

• CIT v. Kings Export 318, ITR, 100; P &

H.

In favour of Assessee

• 152 TTJ 1, ITAT Pune

Contrary decision

• Punjab State Coop. Milk Products

Federation Ltd. v. CIT, (2016) 238,

Taxman, 207; P & H

5.9. Whether can

interest on capital

work in progress be

disallowed ? Not for the purpose of disallowance u/s.

14A. Again question will not arise if

interest is capitalized.

5.10. Whether Rule 8 D can be applied automatically? No. It is important to note that Rule 8D

r.w.s 14A(2) can be invoked only if the AO,

having regard to the accounts of the

assessee is not satisfied with the correctness

of the claim of the assessee, in respect

expenditure incurred in relation to tax free

income.

Recently the Hon’ble SC has in Prin. CIT

V. Moonstar Securities Trading and

Finance Co., Pvt Ltd., (2019) 263,

Taxman.458 dismissed the SLP filed by the

Department against the Delhi HC decision

in Prin. CIT V. Moonstar Securities

Trading and Finance Co. (2019) 105,

taxmann.com 274, in which the HC had

upheld ITAT’s order holding that AO could

not straightaway reject expenditure offered

for disallowance u/s. 14A and apply rule

8D without assigning any reasons.

Also See

• Para 11 of CBDT Circular No. 14 of

2000 (288 ITR (St) 9 ) dt. 28.12.2006

• Godrej & Boycee Mfg. Co. Ltd. V. Dy

CIT (2010) 328, ITR, 81; Bom

• WIMCO Seedling Ltd. V. Dy. CIT 109,

TTJ, 462 (Del) TM.

The courts have held that the AO cannot

ignore the assessee’s working of

disallowance. He must record his

dissatisfaction with respect to assessee’s

claim. He cannot straightway apply Rule

8D.

See

• CIT V. Abhishek Ind. Ltd., (2015) 231,

Taxman 85, P & H

• Kailash Vahan Udyog Ltd., V. Dy. CIT

ITAT Apeal No. 1322/PN/2011 &

No.1675/ PN/2012 – ITAT Pune.

• SCIL Capital India (P) Ltd. V. DCIT

(2015) Tax Pub(DT) 1731 Mumbai E

• ITO v. Stainless Investments Ltd.

(2015) Tax Pub (Dt) 101; Delhi; AT

To put it differently one can conclude that

expenses incurred can be allowed only to

the extent they are relatable to the earning

of taxable income and consequently only

direct expenses incurred for earning an

exempt income will be hit by Sec. 14A.

See

• CBDT Circular No. 14 of 2001 252 ITR

(St.) 65)


Incidentally Mumbai ITAT has however in

Dy CIT v. Daman Estate & Finance (P)

Ltd. 25, ITR(Trib) 683 held that Sec. 14A

includes within its ambit both direct as well

as indirect expenditure qua relevant

income.

Further the onus is on the department to

prove that any expenditure was incurred for

earning tax-free income.

See

• Maruti Udyog Ltd. V. Dy CIT 92 TTJ

987; Delhi

• Zuari Ind. Ltd. V. ACIT 108 TTJ 140;

Mum

• ACIT v. Eicher Ltd. 101, TTJ, 369; Del

• WIMCO Seedlings Ltd., V. Dy. CIT,

109 TTJ, 462 Dehi – TM.

However a contrary view has been taken in

ACIT v. JOE Marcelinho Mathias (143,

ITD 132; Panji) in which it has been held

that onus lay on assessee to prove that he

had not incurred any expenses relating to

exempt income.

5.11. Whether all the

items referred to in

Rule 8D are to be

taken into account

even when a particular

item is found to have

no relation with the

exempt income earned

? No.For example, if there are enough owned,

interest free funds / interest paid could be

ignored for the purpose calculating

disallowance u/r 8D.

5.12. Sufficiency of

owned / non-interest

bearing funds and Sec.

14A If it can be proved that entire investment

(income from which is exempt) was made

out of owned / interest free funds, no

disallowance could be made out of interest

paid.

1) As held by the Bombay HC in CIT V.

SBI DHFL Ltd., (2015) 376, ITR, 296,

there is no presumption that out of

mixed funds, borrowed amount is

utilized in tax free investments.

2) In fact recently Karnatake HC has held

that disallowance u/s. 14A r.w.r. 8D

towards interest expenditure would not

be tenable where the AO failed to

establish a nexus between interest

bearing funds and investment made.

See

• CIT v. Karnataka State Industrial &

Infrastructure Dev. Corpn. Ltd. (2016)

237 Taxman 240; Karnatake

3) In CIT v. Microlabs (2016) 383, ITR,

490 the Karnataka Highcourt has held

as under “when investments are made

out of a common pool of funds and

non-interest bearing funds were more

than the investment in tax free

securities, no disallowance of interest

expenditure can be made u/s. 14A of

the IT Act 1961.

4) Very recently in Prin. CIT V. Ashok

Apparels (P) Ltd. (2019) 106,

Taxmann.com 63, Bombay HC has

held that where revenue failed to

establish that interest free funds were

utilized for making exempt investment,

no disallowance u/s. 14A could have

been made.


5) Also see

• Aditya Medisales Ltd V. Dy. CIT,

(2019), 176, ITD, 783; Ahd.

• Dy. CIT v. Enercon(I) Ltd. (2016) 48,

ITR(Trib) 362, Mumbai

• Prin. CIT v. India Gelatine and

Chemicals Ltd. (2015) 376, ITR, 553;

Guj

• CIT v. Reliance Utilities & Power Ltd.

313, ITR, 340, Bom

• Dy CIT v. Microlabs Ltd. (2015) 70,

SOT, 774; Bang.

• CIT v. Taikisha Engg. (P) Ltd. (2015)

229 Taxman, 143; Delhi

• CIT v. Torrent Power Ltd. 363, ITR,

474; Guj

• CIT v. Suzlon Energy Ltd. (2013) 354,

ITR, 630; Guj

• CIT v. HDFC Bank Ltd. 366 ITR 505

Bom

5.13. Sec. 14A vis-à-vis exempt income from investments made in earlier years. For the applicability of Sec. 14A /Rule 8D

what needs to be examined is whether there

is any exempt income and whether any

expenditure incurred in relation to such

income is claimed by the assessee.

Thus, if investment in shares resulting in

exempt income was made earlier while the

bank loan is raised later, no part of interest

can be disallowed.

See

• CIT v. Indian Sugar Exim Corp. Ltd.

206 Taxman 242 Delhi

• CITv. Banaskantha Dist. Coop. Milk

Production Uniobn Ltd. (2014) 223

Taxman 501; Guj.

5.14. Disallowance out of interest – whether with respect to entire interest relating to all

investments and whether gross or net interest to be considered? It is only when borrowed funds are proved

to have been utilized for investment income

from which is exempt, question of

disallowance of whole or part of interest

paid would arise.

As has been held in Pr. CIT v. Bharti

Overseas (P) Ltd. (2016) 237, Taxman,417

by the Delhi High Court, Rule 8D (2) (ii)

(as in force then) is concerned with only

common interest expenditure which cannot

be attributable to earning either tax exempt

income or taxable income. The Hon’ble HC

further held that it is indeed incongruous

that variable ‘A’ in formula given in Rule

8D (2)(ii) will not exclude interest relatable

to taxable income.

Thus, interest on specific loans (eg against

P&M; Motor Car etc.) is to be excluded and

only those investments income from which

is exempt are required to be considered.

This was the position under old Rule 8D

and it appears it would also apply to

amended Rule 8D w.e.f. 02.06.2016.

See

• CIT V. Vireet Investment Pvt. Ltd.,

(2017) 165, ITD, 27, Delhi, (ITAT),

(SB).

Also see

• TAFE Motors and Tractors Ltd. V.

ACIT (2016) 48, ITR(Trib.) 150,

Chennai

• ACIT v. Best Cromption Engg. Ltd.

(2013) 60, SOT, 53, URO

• ACIT v. Champion Commercial Co.

Ltd. 139, ITD, 108; Kol

• REI Agro Ltd. V. Dy CIT 144, ITD,

141; Kol

Further it has been judicially accepted that

only net interest needs to be considered for

the purpose of determining disallowance.

See


• Dy. CIT v. Trade Apt. Ltd. 53II TCL

600 Kol; A.T

• CIT. Vunbeam Auto Ltd., 332 ITR 167;

Delhi

• Sanchayita Mercantils V. ACIT, (2008)

25 SOT 57 Mumbai

• CIT V. Galileo India Pvt. Ltd., 220,

Taxman, 115, Delhi.

• Morgan Stanely v. ACIT (2011) 55,

DTR, 177, Mumbai, ITAT

• CIT v. Hero Cycles Ltd 323 ITR 518 P

& H

• ACIT v. Keshav Shares (2013) TIOL

386; Delhi – ITAT

5.15. Whether Sec. 14A can be applied with respect to exempt income from assets held for trading ? Yes.

• Double dot Finance Ltd. V. DYCIT

(2014) 65, SOT 324; Mumbai AT

• DY CIT v. D. H. Securities (P) Ltd.

(2014) 99, DTR ™ 298, Mumbai

It does not matter whether the investments

are held as trading assets or otherwise. If

there is exempt income (e.g. dividend on

shares held as stock in trade) corresponding

expenditure if any in earning such income

would not be allowable.

Contrary decision

Sec. 14A/Rule 8D not applicable when

investment (e.g. shares) is held as stock in

trade and no divided is received

See

• ITO v. Inshanike Securities Pvt. Ltd.

• CIT v. India Advantage Securities 380,

ITR, 471, Bombay

• Paresh P. Mehta ITAT – Pune

www.itatonline.org

• CCI Ltd. V. JCIT 250 CTR 291; Karna

• HDFC Bank v. DyCIT (2016) 132 DTR

89, Bom

5.16 How and under what circumstances the assessee should voluntarily make disallowance u/s. 14A ? The assessee alone knows his facts. On

discussion with A/R, if facts warrant such

disallowance, it should be done in the ROI

itself.

This would be advisable also as in terms of

Sec. 14A(2) condition precedent for AO to

determine amount of expenditure incurred

in relation to exempt income is that he must

record his dissatisfaction with the

correctness of claim of expenditure made

by assessee or with the correctness of claim

made by the assessee that no expenditure

has been incurred.

See

• Maxopp Investment Ltd. v. CIT (2011)

203, taxman 364; Delhi

5.17. Agr. Income vis-a-viz Sec. 14A If separate account is maintained or not maintained. If separate agricultural income /

expenditure account is maintained and if it

can be proved that all expenses including

interest if anyin relation to this activity are

debited to this account, in respect of which

no deduction is claimed, there could be no

disallowance out of such expenses.

Difficulty may arise when there is no

separate account. In such a case the

assessee has to prove that there was no

expenditure including on account of interest

which is debited to P & L Account and for

which deduction is claimed is in relation to

agr. Income.


http://www.itatonline.org/

Else, disallowance may have to be worked

out applying Rule 8 D.

5.18. Whether a

disallowance u/s. 14A

r.w.r 8D is to be made

while computing Book

Profits u/s. 115JB

(MAT) ?

ITAT Bangalore Bench ‘A’ has in DUCT v.

Microlabs Ltd. (2015) 70, SOT 774 held

that if the disallowance made by the AO is

not disputed by the assessee , same will be

added to Book Profit u/s. 115JB.

Contrary decisions

• Brakers (I) Ltd. V. Dy CIT (2016) 176

TTJ 716; Chennai in which it is held

that no addition could be made to Book

Profits u/s. 115JB

Also see

• Dy. CIT v. Viraj Profiles Ltd. (2016)

135, DTR, 1, Mumbai

5.19. Whether interest

paid to partners could

be disallowed if it is

incurred in relation to

any exempt income?

The ITAT Mumbai Bench ‘C’ has in ACIT

v. Pahilajrai Jaikishan (2016) 157 ITD 1187

held that such interest shall also be subject

to disallowance u/s. 14A.

It is interesting to note that the Hon’ble

ITAT has further clarified that such

disallowance will not entitle the partners to

claim any relief u/s. 28(v) in their personal

returns and they will be liable to tax in

respect of actual interest received.

The Hon’ble ITAT in the above case relied

upon the deision of the Hon’ble SC in

Munjal Sales v. CIT (298, ITR, 298) in

which it was held that interest paid to the

partners is an expenditure and rejected the

assessee’s contention that interest paid to

partner could not be treated as expenditure

in view of SC decision in CIT v.

Walfort Share & Stock Brokers Private

Ltd. ( 326, ITR,1)

5.20. Presumptive

Taxation & Sec. 14A

Sec. 14A would not apply when deemed

income u/s. 44AD / AE is offered to tax.

See

• Varun Shipping Co. Ltd. V. ACIT

(2012) 17, ITR (Trib) 587; Mumbai

5.21. Share Income from firm exempt u/s.10 (2A) if Sec. 14A could be applied? Any expenditure incurred in earning the

share income from a firm, will be

disallowed u/s. 14A.

See

• CIT v. Popular Vehicle 325, ITR , 523,

Kerala

• Dharamsing Popat v. ACIT 127, TTJ,

61, Mumbai

• Vishnu Anant Mahajan V. ACIT, 147,

TTJ, 142 (Ahd. SB)

• ACIT V. Vinay Singal 17, ITR (Trib)

146, Chd.

However where an assessee has earned

share income as also remuneration from a

firm expenses incurred by him in ratio

which profit share in firm bore to total

receipts from firm, was held to be

disallowable u/s. 14A.


See

• Hohang Navanati V. ACIT 16, ITR,

(Trib) 614 Mumbai

• ACIT V. Vinay Sehgal, 27,

Taxmann.com 136, Chd.

Contrary decision

Share income in the hands of the partner is

not altogether tax free since such income

suffers tax in the hands of the firm. Share

income is exempt u/s. 10 (2A) not in

absolute sense but with a view to avoid

double taxation. Accordingly Sec. 14A

held to be NOT APPLICABLE.

See

• Sudhir Kapadia V. ITO Mumbai Bench

“C” ITA No. 7888/M/03

5.22. Whether AO can resort to any formula other than one prescribed in Rule 8D? Not after introduction of Rule 8D w.e.f

A.Y. 2008-09

5.23. Whether rule 8D can be applied when no books are maintained? Question will not arise when income is

estimated or declared under the scheme of

presumptive taxation.

5.24. No double disallowance in respect of interest u/s. 36(1)(iii) as also u/s. 14A/Rule 8D If interest is disallowed u/s. 36(1)(iii), the

same will not again be considered u/s. 14A/

Rule 8D.

See

• ITO v. Snowtex Investment Ltd. (2015)

64, taxmann.com 157, Kolkata – AT

5.25. Can a completed assessment u/s. 143(3) be reopened u/s. 147 for making disallowance u/s. 14A? Proceedings u/s. 147/ 154 to increase the

liability applying sec. 14A for the AY

2001-02 or earlier years are barred vide

proviso to Sec. 14A.

However, in later year/s subject to

satisfaction of conditions specified in Sec.

147, notice u/s. 148 may be issued if there

is a reason to believe that income has

escaped assessment and if there is no

change in opinion.

In a recent case where the assessee had

disclosed all material facts relating to tax

free dividend in the course of assessment

proceedings, initiation of reassessment

proceedings on the ground that the assessee

had not offered any expenditure for

disallowance is held to be not sustainable.

See

• Sun Pharmaceuticals Industries Ltd. v.

Dy. CIT, (2016) 237, Taxman, 709;

Delhi HC

5.26. Can AO act u/s. 154 after the assessment is completed to disallow any expenditure u/s 14A?

No, Since the determination of

disallowance involves various exercises –

each of which may be subject to different

interpretation, Sec. 154 cannot be applied.


5.27. Can CIT (A) enhance the assessment when no disallowance is made by the AO? The SC had in CIT v. Shapoorji Pallonji

(44, ITR, 891) and CIIT v. Rai Bhadur

Hardutroy taken a view that CIT (A)’s

powers to enhance the assessment are

limited to only those items / sources of

income which are considered by the AO.

However later in CIT v. Nirbheram

Deluram (224 ITR, 610) the SC held that

CIIT (A) could do what AO could have

done or he could direct the AO to do

something he failed to do.

Thus there is a controversy re, power of

enhancement by CIT(A). However better

view seems to be that though CIT(A) has

plenary powers which are co-terminals

with the powers of the AO, his (CIT(A)’s)

powers are restricted to the issues covered

by the Assessment Order. He therefore

cannot touch the issue not considered by the

AO.

See

• CIT v. Sardarilal & Co. 251, ITR, 864

Delhi-FB

The CIT/AO can of course act under

section 263/147 if other conditions

specified therein are satisfied.

5.28. Can CIT invoke his powers u/s. 263 when no disallowance u/s. 14A is made by the AO? CIT can act u/s. 263, when no query is

raised by the AO in this respect. It would be

a lack of enquiry on the part of AO, thus

justifying initiation of proceedings u/s. 263.

Note

Position is likely to be different here after

in view of amendment to Sec. 263 w.e.f.

1.6.2015.

5.29. Can the disallowance attract Sec. 271(1) (c) or w.e.f. A.Y. 2017-18 u/s. 270A ? If all the facts re; exempt income / expenses

relating thereto etc are disclosed no penalty

can be levied.

5.30. Disallowance u/s. 14A – auditor’s responsibility in tax audit. As stated by ICAI in its GN on Tax Audit

primarily it is assessee’s responsibility to

furnish the details of inadmissible expenses

which are required to be verified by the Tax

Auditor. If both of them agree on the

quantum of disallowance the same, will be

reported in 3CD. In case of disagreement

auditor may report such fact. However if no

details are furnished the auditor can give

disclaimer of opinion.

6. Conclusion To conclude, an attempt is made here to discuss some of the issues arising on practical implementation of provisions of Sec. 14A/Rule 8D in the light of judicial pronouncements. While we need to comply with statutory provision both in letter and spirit, the court decisions depending upon the facts of the case may also come to the rescue of the assessee at least at appellate level, if not at the assessment stage.


Compiled by: CA Niranjan Doshi


HAPPINESS

CALENDAR


MEMORIES

GALORE

Additional SP, Shri Lohit Matani

sharing his views.

Participants at Blood Donation

Camp supported by Shri

Madhavrao Golwalkar Raktpedhi.

Annual General Meeting of

Members of Jalgaon branch.

Eye Check up Camp by Shri

Mangilalji Bafna Netrapedhi.


Distribution of Educational Kit at

Mukbadhir Shala sponsored by

Past Chairman CA Ajay Jain.

Seminar on Standards on Internal

Audit.

Faculty CA Kalpesh Panchal

sharing his views on Internal

Auditor as Business Leader –

Innovation & Effectiveness.

Faculty CA Murtuza Kachwala

sharing his views on Standards on

Internal Audit-Codifying Best

Practice .

Partners in Nation Building (Jalgaon branch of WIRC of ICAI) felicitating Tax Regulators

(Income Tax Department, Jalgaon) on occasion of 159th Income Tax Day.


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