DCIT-1(2)(1), MUMBAI., MUMBAI vs. INDIAN CLEARING CORP ORATION LIMITED, MUMBAI

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ITA 873/MUM/2025Status: DisposedITAT Mumbai25 August 2025AY 2014-157 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the order of the CIT(A) and dismissed the appeal of the Revenue. The Tribunal noted that the AO had nowhere discussed any dissatisfaction with the assessee's computation of suo motu disallowance. The Tribunal relied on the binding decision of the Hon'ble Jurisdictional High Court of Bombay in PCIT vs. M/s. Bombay Stock Exchange Ltd. This decision held that non-satisfaction with the disallowance offered by the assessee must be arrived at on the basis of the accounts submitted by the assessee. The AO must carry out this exercise before rejecting the disallowance claimed by the assessee and applying Rule 8D. The Tribunal found that the CIT(A) had correctly concluded that the AO had not recorded non-satisfaction as required under Section 14A(2) of the Act. Therefore, the Tribunal declined to interfere with the findings of the CIT(A) and dismissed the grounds raised by the Revenue.

What were the facts?

The Revenue is in appeal against the order of the NFAC, Delhi, for AY 2014-15. The assessee, India Clearing Corporation Limited, declared a total income of Rs. 42,75,21,800/-. During scrutiny, the Assessing Officer (AO) noted exempt income of Rs. 32,96,91,275/- from bonds and mutual funds. The assessee had suo motu disallowed Rs. 19,49,000/- under Section 14A. The AO, finding the assessee's claim unsatisfactory, invoked Section 14A read with Rule 8D and made an addition of Rs. 2,00,28,069/-. The assessee contended before the CIT(A) that its suo motu disallowance was sufficient. The CIT(A) deleted the addition, holding that the AO had not provided detailed reasoning for dissatisfaction.

What were the issues?

1. Whether, on the facts and in law, the CIT(A) erred in deleting the addition of Rs. 2,00,28,069/- made by the AO under Section 14A read with Rule 8D, when the assessee's suo motu disallowance was not satisfactory? Assessee's Contention: The assessee argued that its suo motu disallowance of Rs. 19,49,000/- was sufficient for the disallowance under Section 14A. The assessee provided a detailed working of expenses considered and not considered for this disallowance. Revenue's Contention: The Revenue relied on the assessment order and the AO's finding that the assessee's claim was not satisfactory. The Revenue supported its submissions by relying on the decision of the Hon'ble High Court of Delhi in Indiabulls Financial Services Ltd. Vs DCIT [2017] 395 ITR 242 (Delhi).

Which sections of the Income-tax Act were involved?

Section 14A

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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI

Before: SHRI NARENDRA KUMAR BILLAIYA, HONBLE & SHRI SANDEEP SINGH KARHAIL, HONBLE

For Appellant: Shri Niraj D. Sheth, A/R
Hearing: 20/08/2025Pronounced: 25/08/2025

ORDER \nPER NARENDRA KUMAR BILLAIYA, AM:\nThis appeal by the revenue is preferred against the order dated\n19/12/2024 of the NFAC, Delhi [hereinafter the “ld. CIT(A)"] pertaining\nto AY 2014-15.\n2. The solitary grievance of the revenue is that the ld. CIT(A) erred in\ndeleting the addition of Rs.2,00,28,069/- made u/s 14A r.w.r. 8D, by the\nAO.\n3. Briefly stated the facts of the case are that the assessee filed its\nreturn of income on 27/11/2014 declaring total income at Rs.\n42,75,21,800/-. The return was selected for scrutiny assessment under\nCASS and accordingly statutory notices were issued and served upon the\nassessee. During the course of the scrutiny assessment proceedings, the\nAO noticed that the assessee has earned Rs.32,96,91,275/- of exempt\nincome from bonds and mutual funds. The assessee has made a\ndisallowance of Rs.19,49,000/- u/s 14A of the Act for earning exempt\nincome. The AO simply observed that the claim made by the assessee is\nnot satisfactory and invoking provisions of Section 14A r.w.r. 8D, the AO\ncomputed the disallowance at Rs.2,00,28,069/-. The assessee challenged\nthe addition before the ld. CIT(A) and reiterated that the suo moto\ndisallowance made by it would suffice the disallowance u/s 14A of the\nAct.\n4. After considering the facts and the submissions, the ld. CIT(A) was\nconvinced that the AO has merely stated that the claim made by the\nassessee is not satisfactory without providing detailed reasoning or\nobjective criteria for his dissatisfaction. Drawing support from several\njudicial decisions, the ld. CIT(A) directed the AO to delete the\ndisallowance of Rs.2,00,28,069/-.\n5. Before us, the ld. D/R strongly relied upon the assessment order\nand the ld. Counsel for the assessee reiterated what has been stated\nbefore the lower authorities. The ld. D/R supported his submissions by\ndrawing support from the decisions of the Hon'ble High Court of Delhi\nin the case of Indiabulls Financial Services Ltd. Vs DCIT [2017] 395 ITR 242\n(Delhi).\n6. We have carefully considered the orders of the authorities below.\nIt is true that the assessee has suo moto disallowed Rs.19.49 Lakhs and\nhas computed the disallowance as under:-\n| Sr.\nNo. |\nParticulars\nAmount\n| |\n1 |\nInfrastructure Expenses\n(Rent)\n38\n2 |\nAuditors Remuneration\n8\n3 |\nMiscellaneous Expenses\n37\n4 |\nElectricity Expenses\n5\n5 |\nProperty Tax Expenses\n7\n6 |\nStamp duty & Registration\nCharges\n5\nList of Expenses Considered\nwhile calculating amount of\ndisallowance u/s.14A.\n7 |\nFinance Cost\n16\n8 |\nDepreciation &\nAmortisation\n27\n9 |\nPersonnel Deputation Cost\n100\n10 |\nInsurance\n16\nSUB-TOTAL (A)\n260\nList of expenses not considered while calculating amount of disallowance u/s.\n14A(1):\nSr.\nNo.\nParticulars\nAmount\nReason for non inclusion\n1 |\nAmortisation of Preliminary\nExpenses\n9\nRelated to Company formation\nexpenses and further issue of\nShare Capital.\n2 |\nClearing House Charges\n120\nAmount paid towards clearing\nand settlement activity of the\ncompany.\n3 |\nComputer\nTechnology\nRelated Expenses\n674\nRelated to Clearing and\nSettlement Activity of the\nCompany.\n4 |\nDirectors' Sitting Fees\n3\nSitting fees paid to the directors.\n5 |\nLegal Fees\n41\nLegal services are availed for\nbusiness operations.\n6 |\nLoss on Sale/Redemption\nof Mutual Funds\n12\nLoss on Sale of Investments, not\nrelevant for 14A working.\n7 |\nProfessional Fees\n35\nProfessional services are availed\nfor business operations.\n8 |\nProvision in Diminution of\nCurrent Investments\n47\nTo comply with the Accounting\nStandards.\n9 |\nService Tax Expenses\n58\nStatutory payment not related to\ntreasury operations.\n10 |\nTravelling Expenses\n18\nTravelling expenses are incurred\nfor business operations.\n11 |\nEmployee Benefit Expenses\n315\nOut of the total expenditure of\nRs.315lakhs only Rs.11.44lakhs\npertaining to 3 employees of\ntreasury department has been\ndisallowed separately in 14A\nworking and the\nbalance\nexpenditure is related to the\nbusiness operations of the\ncompany.\nSUB-TOTAL (B)\n1331\nTOTAL (A+B)\n1591\nExpenses as per Profit & loss\nAccount\nWorking of the disallowance u/s.14A(1) is as follows:\n(Amount in Rs.)\nParticulars\nBasis\nAmount Amount\nA\nDIRECT EXPENSES\nSalary to Staff\n11,44,333\nB\nINDIRECT EXPENSES\nInfrastructure Expenses (Rent)\nArea\n38,39,400\nAuditors Remuneration\nArea\n8,00,000\nMiscellaneous Expenses\nArea\n36,96,802\nElectricity Expenses\nArea\n5,30,722\nProperty Tax Expenses\nArea\n6,88,707\nStamp duty & Registration charges\nArea\n5,11,581\nFinance Cost\nArea\n15,88,315\nDepreciation & Amortization\nArea\n27,14,020\n1,43,69,547\nBasis of Allocation\nTotal area occupied by the appellant\nin square feet\nSq. feet\n3,770\nTotal area occupied by the Treasury\nSection\nSq. feet\n100\n(Rs.1,43,69,547*100/3770)\n3,81,155\nPersonnel Deputation Cost\nSalary\n1,00,00,000\nInsurance\nSalary\n16,18,771\n1,16,18,771\nBasis of Allocation\nTreasury department's salary\nSalary\n11,44,333\n(3.64% Approx)\nEmployee Benefit Expenses (100%)\nSalary\n3,14,45,959\n(Rs.1,16,18,771*3.64%Approx)\n4,22,812\nTotal Amount Inadmissible u/s.14A\n19,48,301\nTotal Amount Inadmissible u/s.14A\n(Rounded off)\n19,49,000\n7. A perusal of the assessment order shows that nowhere the AO has\ndiscussed any dissatisfaction insofar as the aforementioned\ncomputation of suo moto disallowance made by the assessee is\nconcerned. The Hon'ble Jurisdictional High Court of Bombay in the case\nof PCIT vs. M/s. Bombay Stock Exchange Ltd. in Income Tax Appeal No. 1017\nof 2017, order dated 15/10/2019, was seized with the following question of\nlaw:-\n\"2. The Revenue has urged the following question of law for our consideration:\n“Whether on the facts and circumstances of the case and in law, the\nTribunal has erred in holding that AO has not recorded satisfaction\nu/s 14A(2) despite the AO discussing the assessee's method in para\n5.3 before not accepting the same?”\n7.

1.

And interalia answered as under:-\n\"11. Non-satisfaction with the disallowance offered by the assessee has to be\narrived at on the basis of the accounts submitted by the assessee. In this case, the\nAssessing Officer had not carried out the aforesaid exercise but rejected the\ndisallowance claimed by the assessee only on the ground that it was not in accordance\nwith Rule 8D of the Rules. The application of Rule 8D of the Rules would only arise\nonce the Assessing Officer is not satisfied on an objective criteria in the context of its\naccounts, that suo motu disallowance claimed by the assessee is not proper.\n12. In fact, the Supreme Court in the case of Maxopp Investment Ltd. v.\nCommissioner of Income Tax' while upholding the view of the Delhi High Court has\nheld that the Assessing Officer needs to record his non-satisfaction having regard to\nthe sou motu disallowances claimed by the assessee in the context of its accounts. It\nis only thereafter, the occasion to apply rule 8D of the Rules for apportionment of\nexpenses can arise.\n13. In the present facts, the Tribunal has correctly come to the conclusion that\nnon-satisfaction as recorded by the Assessing Officer for rejecting the suo moto\ndisallowances claimed by the assessee is not done as required under sections 14A(2)\nof the Act. On facts, the view taken by the Tribunal is a possible view and calls for\nno interference.\"\n8. Respectfully following the binding decisions of the Hon'ble\nJurisdictional High Court (supra), we decline to interfere with the\nfindings of the ld. CIT(A). The effective ground/s raised by the revenue\nare dismissed.\n9. In the result, appeal of the revenue is dismissed.\nOrder pronounced in the Court on August, 2025 at Mumbai.\nSd/-\n(SANDEEP SINGH KARHAIL)\nJUDICIAL MEMBER\nSd/-\n(NARENDRA KUMAR BILLAIYA)\nACCOUNTANT MEMBER\nMumbai, Dated 25/08/2025\nआदेश की प्रतिलिपि अग्रेषित/

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