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Income Tax Appellate Tribunal, ‘’ B ’’ BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax (Appeals)-10, Ahmedabad dated 07/09/2017 ( in short “Ld.CIT(A)”) arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here- in-after referred to as "the Act") dt. 11/03/2016 relevant to the Assessment Year 2013-2014.
The solitary issue raised by the assessee is that the ''Ld.CIT (A)'' erred in confirming the order of the AO by disallowing expenses of Rs.8,27.764/- under the provision of section 14A r.w.r 8D of the Income-tax Rules on account of administrative expenses.
The facts, in brief, are that the assessee is a limited company and engaged in the business of Share Broking, Trading in Shares, Securities & Currency in F & O and physical mode, Depository participants of NSDL & CDSL for D-mat Account, Trading in Foreign Exchange ( F & O). The assessee in the year under consideration has earned dividend income of Rs.11,42,979/- and claim the same as exempt income u/s 10(34) of the Act. The assessee in the assessment proceedings claimed that it has not required to make the disallowance of the expenses against the exempted income as per the provision of 14A r.w.r. 8D of the I.T Rules as it is running a business of sale and purchase of shares/ securities.
2.1 However, the AO dis-agreed with the contentions of the assessee and invoked the provision of section 14A r.w.r. 8D of I.T Rules and made the disallowance of Rs.8,27,764/- being one-half percent of the average value of investments of Rs.16,55,52,858/- and added to the total income of the assessee.
3. The aggrieved assessee preferred an appeal to the ''Ld.CIT (A)''. The assessee before the ''Ld.CIT (A)'' inter-alia submitted that it has already made suo moto disallowance of Rs. 69,262/- in the statement of income. However, the AO, without pointing out any defect in the said disallowance invoked the provision of Rule 8D of the I.T Rules. As such the AO was to record satisfaction before invoking the provision of 14A r.w.r 8D of the I.T Rules Page 2 of 4 after rejecting suo moto disallowance made by the assessee based on cogent reasons.
However the ''Ld.CIT (A)'' dis-regarded the contentions of the assessee and confirmed the order of the AO by observing as under: ‘’ Regarding the additions of 0.5% average investment under Rule 8D, the additions of Rs.2,27,764/- made by the Assessing Officer is found justified as there is no discretion with the A.O in this regard. Hence, the additions made by the A.O is confirmed to the extent of Rs.8,27,764/-.”
Being aggrieved by the order of the ''Ld.CIT (A)'' assessee is in appeal before us.
The Ld.AR, before us, filed a paper book running from pages 1 to 22 and reiterated the submission made before the ''Ld.CIT (A)''.
On the other hand, Ld. DR, submitted that the AO had invoked the provision of section 14A r.w.r. 8D after considering the reply of the assessee. Thus it is implied that the contentions raised by the assessee were rejected. Thus it implied that the AO was not satisfied with the working of the disallowance made by the assessee.
5.1 The Ld.DR, vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on records. The issue in the instant case relates to the disallowance made by the AO under Rule 8D(2)(iii) of I.T Rules on account of administrative expenses. Admittedly, the assessee has made the disallowance suo moto in the statement of income against the exempted income under the provision of 14A r.w.r 8 D of I.T Rules amounting to Page 3 of 4 Rs.69,262/- only. Thus, we are of the view that the AO before resorting to the provision of section 14A r.w.r. 8D of the I.T. Rules was to reject the disallowance made by the assessee for Rs. 69,262/- based on cogent reasons. However, the AO has mechanically considered the disallowance made by the assessee and accordingly rejected without adducing any reason thereon.
6.1 In our considered view, the provision of section 14A r.w.r. 8D cannot be invoked mechanically. The provision of section 14A r.w.r. 8D of I.T. Rules requires the AO to record satisfaction after considering the books of accounts maintained by the assessee to reach to the conclusion that the claim of the assessee is not correct before making the disallowance as per the provision of Rule 8D(2)(iii) of Rules. As the AO has not rejected the disallowance made by the assessee based on cogent reasons, we do not want to uphold the findings of the authorities below. Accordingly, we hold that the disallowance has been made u/s 14A r.w.r 8D in a mechanical manner which is against the intent of the provision of law. Hence, we reverse the order of the authorities below and direct the AO to delete the disallowance made by him. This ground of appeal of the assessee is allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 25/07/2019 at Ahmedabad.