LINEAR DEALERS PVT. LTD,KOLKATA vs. ITO, WARD-6(2), KOL, KOLKATA

The present appeal is directed at the instance of the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter the “ld. CIT(A)”) dated 06/01/2023, passed u/s 250 of the Income Tax Act, 1961 (“the Act’), for Assessment Year 2014-15.

The sole issue for our consideration is regarding disallowance u/s 14A of the Act at Rs. 58,007/-.

At the outset, the ld. Counsel for the assessee referring to the assessment order submitted that the assessee had made suo moto disallowance of Rs.8,335/- and has filed the computation of the said disallowance before the Assessing Officer. However, the ld. Assessing Officer without making any proper investigation firstly observed that no expenses were disallowed by the assessee u/s 14A of the Act by the assessee company so far as direct and indirect expenses are concerned and thereafter at the end, while completing the assessment has given Assessment Year: 2014-15 Linear Dealers Pvt. Ltd. the deduction of amount suo moto offered by the assessee. It thus shows that the ld. Assessing Officer has not examined the details filed by the assessee and without proper satisfaction, has resorted to Rule 8D of the Income Tax Rules, 1962. Reliance was placed on plethora of judgments including the judgment of the Hon’ble Apex Court in the case of Godrej & Boyce Manufacturing Co. Ltd. v. Dy. CIT & Anr. (2017) 394 ITR 449 (SC) and also decision of this Tribunal in the case of DCIT vs. Ashish Jhunjhunwala in Assessment Year 2009- 10.

On the other hand, the ld. D/R vehemently argued supporting the orders of the lower authorities.

We have heard the rival contentions and perused the material available on record. The issue before us relates to disallowance u/s 14A of the Act and the provisions of Section 14A of the Act, read as follows:- “14A. 62[(1)] 63[Notwithstanding anything to the contrary contained in this Act, for the purposes of] computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred64 by the assessee in relation to64 income which does not form part of the total income64 under this Act.] 62[(2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed65, if the 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. (3) 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 :] Assessment Year: 2014-15 Linear Dealers Pvt. Ltd.

From perusal of the above section, we notice that in sub-section (2) of Section 14A of the Act, it is stated that only if the 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, then under such circumstances, the ld. Assessing Officer shall determine the amount of expenditure incurred in accordance with the prescribed method. So, the first hurdle to be crossed by the Assessing Officer is of recording a satisfaction if not satisfied with the claim made by the assessee. In the instant case, we notice that the assessee has computed the disallowance under section 14A of the Act suo moto at Rs.8,355/-. Calculation of the same is available at page 32, wherein, the 12 heads of expenditure have been mentioned and against those heads of expenses, where there is any element of disallowance to be made under section 14A of the Act, the assessee has made and offered it to tax calculations. These detail were Assessment Year: 2014-15 Linear Dealers Pvt. Ltd. filed before the ld. Assessing Officer. Now the Assessing Officer in order to determine the disallowance under section 14A of the Act as per Rule 8D, ought to have first recorded the satisfaction to the fact whether the amount of disallowance computed by the assessee is incorrect and the reasons for holding it to be incorrect and thereafter he can proceed with the determination of disallowance under section 14A of the Act. However, at page 2 of the assessment order the ld. Assessing Officer observed that on examination of the record it is found that no expenses were disallowed under section 14A of the Act by the assessee company so far as direct and indirect expenses are concerned. This observation of the Assessing Officer clearly indicates that he has not examined the claim of the assessee even though it was filed during the course of hearing and also in the computation of income said disallowance has been added to the net profit in the profit and loss account. Thereafter we notice that at the time of concluding the assessment order the ld. Assessing Officer has referred to the suo moto disallowance made by the assessee at Rs.8,355/- and has reduced the same out of the disallowance calculated by the it under Rule 8D at Rs. 66,362/- .

The facts narrated above clearly indicates that the assessing officer has failed to comply with the provisions of sub-section (2) to Section 14A of the Act and since the ld. Assessing Officer has not complied to the said provisions and has not recorded proper satisfaction in respect of the correctness of the claim of the assessee, Assessment Year: 2014-15 Linear Dealers Pvt. Ltd.