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Income Tax Appellate Tribunal, MUMBAI BENCH “A” MUMBAI
Before: SHRI KULDIP SINGH & SHRI OM PRAKASH KANT
permeating from same set of facts and circumstances is involved, permeating from same set of facts and circumstances is involved, permeating from same set of facts and circumstances is involved, and therefore, these appeals and therefore, these appeals were heard together and disposed heard together and disposed off by way of this consolidated order for convenience and avoid by way of this consolidated order for convenience and avoid by way of this consolidated order for convenience and avoid repetition of facts.
Firstly, we take up the appeal of the assessee for AY 2016-17. Firstly, we take up the appeal of the assessee for AY 2016 Firstly, we take up the appeal of the assessee for AY 2016 The grounds raised in appeal for assessment year 201 grounds raised in appeal for assessment year 2016-17, as grounds raised in appeal for assessment year 201 under:
On the facts and in the circumstances of the case and in law the On the facts and in the circumstances of the case and in law the On the facts and in the circumstances of the case and in law the Hon'ble CIT(A) erred in upholding addition of Rs.4,37,130/- Hon'ble CIT(A) erred in upholding addition of Rs.4,37,130/ Hon'ble CIT(A) erred in upholding addition of Rs.4,37,130/ made by the Ld AO by wrongly concluding that actual interest made by the Ld AO by wrongly concluding that actual interest made by the Ld AO by wrongly concluding that actual interest has been received on refund without appreciating the fact that has been received on refund without appreciating the fact that has been received on refund without appreciating the fact that assesse assessee never received any intimation nor any communication e never received any intimation nor any communication from the department in respect of credit of refund and its from the department in respect of credit of refund and its from the department in respect of credit of refund and its corresponding corresponding interest and the reason assigned for doing so are e reason assigned for doing so are wrong and contrary to the provision of Income Tax Act and wrong and contrary to the provision of Income Tax Act and wrong and contrary to the provision of Income Tax Act and rules made there unde rules made there under.
2. On the facts and in the R circumstances of the case and in law On the facts and in the R circumstances of the case and in law On the facts and in the R circumstances of the case and in law the the the Hon'ble Hon'ble Hon'ble CIT(A) CIT(A) CIT(A) erred erred erred in in in upholding upholding upholding addition addition addition of of of Rs.14,51,111/ Rs.14,51,111/- made by the Ld AO by wrongly invoking made by the Ld AO by wrongly invoking provisions of section 14A r.w.r 8D of the Act and the reason provisions of section 14A r.w.r 8D of the Act and the reason provisions of section 14A r.w.r 8D of the Act and the reason assigned for doing so are assigned for doing so are wrong and contrary to the provision wrong and contrary to the provision of Income Tax Act and rules made there under. of Income Tax Act and rules made there under.
M/s Aachman Vanijya Pvt. Ltd. M/s Aachman Vanijya Pvt. Ltd. 3 ITA No. 1509/M/2021
Your appellant craves leave to add to, amend alter or delete Your appellant craves leave to add to, amend alter or delete Your appellant craves leave to add to, amend alter or delete any of the above grounds of appeal
on or before the date of any of the above grounds of appeal on or before the date of any of the above grounds of appeal on or before the date of hearing. hearing.
3. Briefly stated, facts of the case are tha Briefly stated, facts of the case are that the assessee filed its assessee filed its return of income for the year under consideration on 06.10.2016 return of income for the year under consideration on 06.10.2016 return of income for the year under consideration on 06.10.2016 declaring total income at declaring total income at ₹2,81,21,040/-. In the case of the assessee, . In the case of the assessee, a search and seizure action u/s 132 of the Income a search and seizure action u/s 132 of the Income-tax Act, 1961 (in tax Act, 1961 (in short ‘the Act’) was short ‘the Act’) was carried out on 03.07.2019 and thereafter, on 03.07.2019 and thereafter, following the due process laid down in the Act process laid down in the Act, the assessment assessment was completed u/s 153A r.w.s. 143(3) of the Act on 28.12.2019, wherein 3A r.w.s. 143(3) of the Act on 28.12.2019, wherein 3A r.w.s. 143(3) of the Act on 28.12.2019, wherein the Assessing Officer made addition for interest on income the Assessing Officer made addition for interest on income the Assessing Officer made addition for interest on income-tax refund of ₹4,37,130/ 4,37,130/- and disallowance u/s 14A amounting to and disallowance u/s 14A amounting to ₹14,51,111/-.
4. Aggrieved, the assessee filed appeal before the Ld. CIT(A) but Aggrieved, the assessee filed appeal before the Ld. CIT(A) but Aggrieved, the assessee filed appeal before the Ld. CIT(A) but did not find any favour and additions made by the Assessing Officer favour and additions made by the Assessing Officer favour and additions made by the Assessing Officer were confirmed by the Ld. CIT(A). were confirmed by the Ld. CIT(A).
M/s Aachman Vanijya Pvt. Ltd. M/s Aachman Vanijya Pvt. Ltd. 4 ITA No. 1509/M/2021
Aggrieved, the assess Aggrieved, the assessee has filed appeal before the Tribunal ee has filed appeal before the Tribunal raising the grounds as reproduced above. raising the grounds as reproduced above.
We note that despite notifying for the hearing, neither anyone We note that despite notifying for the hearing, neither anyone We note that despite notifying for the hearing, neither anyone appeared on behalf of the assessee nor any adjournment was appeared on behalf of the assessee nor any adjournment was appeared on behalf of the assessee nor any adjournment was sought. On perusal of the record, it is found tha sought. On perusal of the record, it is found that on earlier occasion t on earlier occasions also none attended on behalf of the assessee even after duly notified also none attended on behalf of the assessee even after duly notified also none attended on behalf of the assessee even after duly notified by registered post. In the circumstances, we were of the opinion that by registered post. In the circumstances, we were of the opinion that by registered post. In the circumstances, we were of the opinion that no purpose would be served in would be served in further adjourning further adjourning the appeal and, therefore, the appeal was he appeal was heard ex-parte qua the assessee after parte qua the assessee after hearing arguments of the Ld. Departmental Representative (DR). hearing arguments of the Ld. Departmental Representative (DR). hearing arguments of the Ld. Departmental Representative (DR).
6.1 As far was Ground No. 1 of the appeal is concerned, the Ld. As far was Ground No. 1 of the appeal is concerned, the Ld. As far was Ground No. 1 of the appeal is concerned, the Ld. CIT(A) has adjudicated as under : CIT(A) has adjudicated as under :
“6.4.1 I have considered the submissions of the appellant 6.4.1 I have considered the submissions of the appellant and 6.4.1 I have considered the submissions of the appellant perused the materials available on record. The appellant has perused the materials available on record. The appellant has perused the materials available on record. The appellant has requested to delete the impugned addition of Rs.4,37,130/ requested to delete the impugned addition of Rs.4,37,130/ requested to delete the impugned addition of Rs.4,37,130/-, being amount of interest received on IT refund omitted to be included in amount of interest received on IT refund omitted to be included in amount of interest received on IT refund omitted to be included in the total income. The appellant has made elaborate submiss the total income. The appellant has made elaborate submiss the total income. The appellant has made elaborate submissions and the same are considered carefully. The main contention of the and the same are considered carefully. The main contention of the and the same are considered carefully. The main contention of the M/s Aachman Vanijya Pvt. Ltd. M/s Aachman Vanijya Pvt. Ltd. 5 ITA No. 1509/M/2021 appellant is that since said interest on IT refund was not received in appellant is that since said interest on IT refund was not received in appellant is that since said interest on IT refund was not received in Bank account but the same was adjusted against the outstanding Bank account but the same was adjusted against the outstanding Bank account but the same was adjusted against the outstanding demand, so the appellant has not offered the same t demand, so the appellant has not offered the same to tax in R/I filed. o tax in R/I filed. The contentions of the appellant is devoid of merits as it is admitted The contentions of the appellant is devoid of merits as it is admitted The contentions of the appellant is devoid of merits as it is admitted fact that during the year under consideration, the appellant did fact that during the year under consideration, the appellant did fact that during the year under consideration, the appellant did receive interest of Rs.4,37,130/ receive interest of Rs.4,37,130/- on IT refund and the appellant on IT refund and the appellant itself has confirmed that the same itself has confirmed that the same was adjusted against the was adjusted against the outstanding demands. The outstanding demands were liabilities of outstanding demands. The outstanding demands were liabilities of outstanding demands. The outstanding demands were liabilities of the appellant and adjustment of said interest on IT refund against the appellant and adjustment of said interest on IT refund against the appellant and adjustment of said interest on IT refund against the outstanding demand liabilities would tantamount to payment the outstanding demand liabilities would tantamount to payment the outstanding demand liabilities would tantamount to payment made on behalf of the appellant for made on behalf of the appellant for which due credit will be allowed which due credit will be allowed to the appellant. Mere fact that said interest income on IT refund to the appellant. Mere fact that said interest income on IT refund to the appellant. Mere fact that said interest income on IT refund was adjusted against outstanding demands would not change its was adjusted against outstanding demands would not change its was adjusted against outstanding demands would not change its character and the same remains income in the hands of the character and the same remains income in the hands of the character and the same remains income in the hands of the appellant. In view of the facts and appellant. In view of the facts and the circumstances of the case, no the circumstances of the case, no fault can be found with the action of the Ld. AO in making addition fault can be found with the action of the Ld. AO in making addition fault can be found with the action of the Ld. AO in making addition on account of interest received on IT refund. Hence, the impugned on account of interest received on IT refund. Hence, the impugned on account of interest received on IT refund. Hence, the impugned addition of Rs.4,37,130/ addition of Rs.4,37,130/- is CONFIRMED. Therefore, the Ground is CONFIRMED. Therefore, the Ground No.1 raised in appeal is D No.1 raised in appeal is DISMISSED.” 6.2 We find that the interest arose on the refund issued to the We find that the interest arose on the refund issued to the We find that the interest arose on the refund issued to the assessee, however, the said refund was directly adjusted against the assessee, however, the said refund was directly adjusted against the assessee, however, the said refund was directly adjusted against the outstanding demand of the assessee. The grievance of the assessee outstanding demand of the assessee. The grievance of the assessee outstanding demand of the assessee. The grievance of the assessee is that he was not not aware about such adjustment aware about such adjustments made by the Income-tax Department tax Department and therefore, no addition should have been and therefore, no addition should have been made for interest amount in the year under consideration for interest amount in the year under consideration for interest amount in the year under consideration. In our
M/s Aachman Vanijya Pvt. Ltd. M/s Aachman Vanijya Pvt. Ltd. 6 ITA No. 1509/M/2021 opinion, the argument of the assessee is not justified. It is opinion, the argument of the assessee is not justified. It is opinion, the argument of the assessee is not justified. It is undisputed that interest has been allowed to the undisputed that interest has been allowed to the assessee and that assessee and that an interest has been adjusted against the tax liability of the assessee an interest has been adjusted against the tax liability of the assessee an interest has been adjusted against the tax liability of the assessee so undisputedly, the interest income has accrued to the assessee in so undisputedly, the interest income has accrued to the assessee in so undisputedly, the interest income has accrued to the assessee in relevant assessment year when the refund along with interest has relevant assessment year when the refund along with interest has relevant assessment year when the refund along with interest has been adjusted against tax liabili been adjusted against tax liability. However, the assessee is a liberty ty. However, the assessee is a liberty to take this plea in penalty proceedings if any. Accordingly, we do plea in penalty proceedings if any. Accordingly, we do plea in penalty proceedings if any. Accordingly, we do not find any error in the order of the Ld. CIT(A) on the issue not find any error in the order of the Ld. CIT(A) on the issue not find any error in the order of the Ld. CIT(A) on the issue-in- dispute and we accordingly, uphold the same. dispute and we accordingly, uphold the same.
6.3 As far as, Ground No. 2 of the ap As far as, Ground No. 2 of the appeal is concerned, the Ld. peal is concerned, the Ld. CIT(A) has observed as under:
“7.4.1 I have considered the submissions of the appellant and 7.4.1 I have considered the submissions of the appellant and 7.4.1 I have considered the submissions of the appellant and perused the materials available on record. The appellant has perused the materials available on record. The appellant has perused the materials available on record. The appellant has requested to delete the disallowance made u/s 14A rw Rule 8D at requested to delete the disallowance made u/s 14A rw Rule 8D at requested to delete the disallowance made u/s 14A rw Rule 8D at Rs.14.51.111/- -. The appellant has made detailed submissions as . The appellant has made detailed submissions as above and the same have been considered carefully. The appellant's above and the same have been considered carefully. The appellant's above and the same have been considered carefully. The appellant's main contention is that the provisions of Rule 8D cannot be invoked main contention is that the provisions of Rule 8D cannot be invoked main contention is that the provisions of Rule 8D cannot be invoked automatically, without automatically, without AO drawing his satisfaction in this AO drawing his satisfaction in this regard.
M/s Aachman Vanijya Pvt. Ltd. M/s Aachman Vanijya Pvt. Ltd. 7 ITA No. 1509/M/2021 7.4.2 The appellant's contention is that the application of Rule 8D is 7.4.2 The appellant's contention is that the application of Rule 8D is 7.4.2 The appellant's contention is that the application of Rule 8D is not automatic and the same cannot be invoked until and unless the not automatic and the same cannot be invoked until and unless the not automatic and the same cannot be invoked until and unless the Ld. AO records the cogent reasons for disregarding the claim of the Ld. AO records the cogent reasons for disregarding the claim of the Ld. AO records the cogent reasons for disregarding the claim of the appellant. It is an admitted fact that the appellant. It is an admitted fact that the appellant himself has made appellant himself has made disallowance under sec 14A of the Act and hence it cannot be held disallowance under sec 14A of the Act and hence it cannot be held disallowance under sec 14A of the Act and hence it cannot be held that the Ld. AO has erred in invoking the provisions of sec 14A of the that the Ld. AO has erred in invoking the provisions of sec 14A of the that the Ld. AO has erred in invoking the provisions of sec 14A of the Act. It is also an admitted fact that the Ld. AO has given a factual Act. It is also an admitted fact that the Ld. AO has given a factual Act. It is also an admitted fact that the Ld. AO has given a factual finding in the assessm finding in the assessment order that based on the submissions made ent order that based on the submissions made by the assessee, the working of disallowance w/s 14A rw Rule 8D is by the assessee, the working of disallowance w/s 14A rw Rule 8D is by the assessee, the working of disallowance w/s 14A rw Rule 8D is computed. The Ld. AO has duly discussed the facts of the case and computed. The Ld. AO has duly discussed the facts of the case and computed. The Ld. AO has duly discussed the facts of the case and then made said disallowance u/s 14A of the Act w Rule 8D. It is also then made said disallowance u/s 14A of the Act w Rule 8D. It is also then made said disallowance u/s 14A of the Act w Rule 8D. It is also an admitted fact that the appellant has not given any basis, ed fact that the appellant has not given any basis, ed fact that the appellant has not given any basis, whatsoever, for making suo motto disallowance u/s 14A of the Act whatsoever, for making suo motto disallowance u/s 14A of the Act whatsoever, for making suo motto disallowance u/s 14A of the Act at Rs.95,535/- at Rs.95,535/-, The methodology adopted by the appellant for , The methodology adopted by the appellant for computation of suo computation of suo-moto disallowance under Section 14A of the Act moto disallowance under Section 14A of the Act is without any basis and totally arbitrary and hardly the same can ny basis and totally arbitrary and hardly the same can ny basis and totally arbitrary and hardly the same can be considered as scientific. It is incumbent upon the appellant to be considered as scientific. It is incumbent upon the appellant to be considered as scientific. It is incumbent upon the appellant to substantiate the suo substantiate the suo-moto disallowance computed us 14A of the Act moto disallowance computed us 14A of the Act with facts and figures available on record. This is the precise reas with facts and figures available on record. This is the precise reas with facts and figures available on record. This is the precise reason as to why the Ld. AO did not accept the suo as to why the Ld. AO did not accept the suo-moto disallowance moto disallowance computed by the appellant and proceeded to compute the computed by the appellant and proceeded to compute the computed by the appellant and proceeded to compute the disallowance as per Rule 8D of the Rules. The Hon'ble Gujarat High disallowance as per Rule 8D of the Rules. The Hon'ble Gujarat High disallowance as per Rule 8D of the Rules. The Hon'ble Gujarat High Court in the case of Devarsons Industries P Ltd, reported in 84 Court in the case of Devarsons Industries P Ltd, reported in 84 Court in the case of Devarsons Industries P Ltd, reported in 84 taxmann.com 244 has held that mere fact that the Assessing Officer nn.com 244 has held that mere fact that the Assessing Officer nn.com 244 has held that mere fact that the Assessing Officer did not arrive at satisfaction in a particular manner while making did not arrive at satisfaction in a particular manner while making did not arrive at satisfaction in a particular manner while making disallowance, would not per se destroy mandate of sec 14A of the disallowance, would not per se destroy mandate of sec 14A of the disallowance, would not per se destroy mandate of sec 14A of the Act. For the sake of convenience, the finding of the Hon'ble G Act. For the sake of convenience, the finding of the Hon'ble G Act. For the sake of convenience, the finding of the Hon'ble Gujarat High Court in the above referred case is reproduced as under. High Court in the above referred case is reproduced as under. High Court in the above referred case is reproduced as under.
M/s Aachman Vanijya Pvt. Ltd. M/s Aachman Vanijya Pvt. Ltd. 8 ITA No. 1509/M/2021
8. To give effect to the provision of 8. To give effect to the provision of Section 14A and in particular and in particular sub-section (2) thereof, Rule 8D of the Rules provides the method fo section (2) thereof, Rule 8D of the Rules provides the method fo section (2) thereof, Rule 8D of the Rules provides the method for determining the amount of expenditure in relation to the income determining the amount of expenditure in relation to the income determining the amount of expenditure in relation to the income not includable in the total income. Sub not includable in the total income. Sub-rule (1) echoes the provision rule (1) echoes the provision of sub- sections (2) and (3) of sections (2) and (3) of Section 14A where it provides that if where it provides that if the Assessing Officer having regard to the accounts of the assessee is the Assessing Officer having regard to the accounts of the assessee is the Assessing Officer having regard to the accounts of the assessee is not satisfied with the correctness of the claim of the expenditure or not satisfied with the correctness of the claim of the expenditure or not satisfied with the correctness of the claim of the expenditure or the claim made is that no expenditure has been incurred in relation the claim made is that no expenditure has been incurred in relation the claim made is that no expenditure has been incurred in relation to the income which does not form part of the to the income which does not form part of the total income, he total income, he would determine the amount of expenditure in relation to such would determine the amount of expenditure in relation to such would determine the amount of expenditure in relation to such income in accordance with the income in accordance with the HC-NIC Page 6 of 7 Created On Mon NIC Page 6 of 7 Created On Mon Aug 21 03:13:37 IST 2017 O/TAXAP/522/2017 ORDER provisions Aug 21 03:13:37 IST 2017 O/TAXAP/522/2017 ORDER provisions Aug 21 03:13:37 IST 2017 O/TAXAP/522/2017 ORDER provisions of sub-rule (2). Sub rule (2). Sub-rule (2) of Rule 8D prior to its amendment with amendment with effect from 02.06.2016 provided a formula to apportion the effect from 02.06.2016 provided a formula to apportion the effect from 02.06.2016 provided a formula to apportion the expenditure in connection with the tax free income. expenditure in connection with the tax free income. Section 14A Section 14A as well as Rule 8D require the Assessing Officer to arrive at a well as Rule 8D require the Assessing Officer to arrive at a well as Rule 8D require the Assessing Officer to arrive at a satisfaction that the claim of the expenditure made by the assessee isfaction that the claim of the expenditure made by the assessee isfaction that the claim of the expenditure made by the assessee is not correct. It is only then he can apply the formula under sub is not correct. It is only then he can apply the formula under sub is not correct. It is only then he can apply the formula under sub- rule (2) of Rule 8D. However, these statutory provisions do not rule (2) of Rule 8D. However, these statutory provisions do not rule (2) of Rule 8D. However, these statutory provisions do not require that such satisfaction must be arrived at in a parti require that such satisfaction must be arrived at in a parti require that such satisfaction must be arrived at in a particular manner. As long as there is sufficient material to enable the manner. As long as there is sufficient material to enable the manner. As long as there is sufficient material to enable the Assessing Officer to arrive at such a satisfaction and which is also Assessing Officer to arrive at such a satisfaction and which is also Assessing Officer to arrive at such a satisfaction and which is also recorded by him in the order of assessment, the requirements of the recorded by him in the order of assessment, the requirements of the recorded by him in the order of assessment, the requirements of the statute would be satisfied. In the present case, we statute would be satisfied. In the present case, we have noted that have noted that the Assessing Officer has given detailed reasons for discarding the the Assessing Officer has given detailed reasons for discarding the the Assessing Officer has given detailed reasons for discarding the assessee's theory that to earn the assessable income the assessee assessee's theory that to earn the assessable income the assessee assessee's theory that to earn the assessable income the assessee incurred no expenditure whatsoever. The Tribunal confirmed such incurred no expenditure whatsoever. The Tribunal confirmed such incurred no expenditure whatsoever. The Tribunal confirmed such view. Decision of the Assessing Officer t view. Decision of the Assessing Officer to apply the formula under o apply the formula under Rule 8D was therefore correct. Rule 8D was therefore correct.
M/s Aachman Vanijya Pvt. Ltd. M/s Aachman Vanijya Pvt. Ltd. 9 ITA No. 1509/M/2021 From the provisions of sec 14A wr 8D, it is evident that it is From the provisions of sec 14A wr 8D, it is evident that it is From the provisions of sec 14A wr 8D, it is evident that it is sufficient if the Ld. AO comes to the conclusion that the claim of the sufficient if the Ld. AO comes to the conclusion that the claim of the sufficient if the Ld. AO comes to the conclusion that the claim of the assessee in this regard is not correct and it is not necessary f assessee in this regard is not correct and it is not necessary f assessee in this regard is not correct and it is not necessary for him to decide the extent or quantum of the incorrect claim. Under to decide the extent or quantum of the incorrect claim. Under to decide the extent or quantum of the incorrect claim. Under similar circumstances, the Hon'ble Punjab & Haryan similar circumstances, the Hon'ble Punjab & Haryana High Court in a High Court in the case of Punj the case of Punjab Tractors Ltd reported in 78 taxmann.com 65 has ab Tractors Ltd reported in 78 taxmann.com 65 has held as under.
Assessing Officer comes to the 33. In our view it is sufficient if the 33. In our view it is sufficient if the Assessing Officer comes to the conclusion that the claim of the assessee in this regard is not conclusion that the claim of the assessee in this regard is not conclusion that the claim of the assessee in this regard is not correct. It is not necessary for him to decide the extent or the correct. It is not necessary for him to decide the extent or the correct. It is not necessary for him to decide the extent or the quantum of the incorrect claim. He must, however, correctly quantum of the incorrect claim. He must, however, correctly quantum of the incorrect claim. He must, however, correctly conclude that the claim of the asses conclude that the claim of the assessee is incorrect. It is necessary see is incorrect. It is necessary for the Assessing Officer to rightly come to the conclusion that the for the Assessing Officer to rightly come to the conclusion that the for the Assessing Officer to rightly come to the conclusion that the claim of the assessee is incorrect. The language of Section 14(2) is claim of the assessee is incorrect. The language of Section 14(2) is claim of the assessee is incorrect. The language of Section 14(2) is "is not satisfied with the correctness of the claim" and not "is not satisfied with the correctness of the claim" and not "is not satisfied with the correctness of the claim" and not "reasonably doubts it" "reasonably doubts it" or "has reasons to doubt the correctness of "has reasons to doubt the correctness of the claim".
Mrs. Suri's reliance upon the word "determine" in sub section (2) 34. Mrs. Suri's reliance upon the word "determine" in sub section (2) 34. Mrs. Suri's reliance upon the word "determine" in sub section (2) of Section 14A as regards the second part of her submission is of Section 14A as regards the second part of her submission is of Section 14A as regards the second part of her submission is misplaced. The term determination" in Section 14A(2) applies to the misplaced. The term determination" in Section 14A(2) applies to the misplaced. The term determination" in Section 14A(2) applies to the computation of the expenditure incurred in relation to exempt computation of the expenditure incurred in relation to exempt computation of the expenditure incurred in relation to exempt income by resorting to the method as may be prescribed. The income by resorting to the method as may be prescribed. The income by resorting to the method as may be prescribed. The method is prescribed by Rule 8D. Under section 14A(2) where the method is prescribed by Rule 8D. Under section 14A(2) where the method is prescribed by Rule 8D. Under section 14A(2) where the Assessing Officer is not satisfied with the correctness of the claim Assessing Officer is not satisfied with the correctness of the claim Assessing Officer is not satisfied with the correctness of the claim in respect of the expenditure in relation to exempt income or the respect of the expenditure in relation to exempt income or the respect of the expenditure in relation to exempt income or the assessee's claim that no expenditure has been incurred in relation to assessee's claim that no expenditure has been incurred in relation to assessee's claim that no expenditure has been incurred in relation to such income, 'he shall' determine the amount of such expenditure in such income, 'he shall' determine the amount of such expenditure in such income, 'he shall' determine the amount of such expenditure in accordance with the method prescribed, namely, Rule accordance with the method prescribed, namely, Rule 8D. 8D. The word
M/s Aachman Vanijya Pvt. Ltd. M/s Aachman Vanijya Pvt. Ltd. 10 ITA No. 1509/M/2021 'determine' in Section 14A(2), therefore, is in respect of the exercise 'determine' in Section 14A(2), therefore, is in respect of the exercise 'determine' in Section 14A(2), therefore, is in respect of the exercise to be undertaken for the purpose of computing the expenditure in to be undertaken for the purpose of computing the expenditure in to be undertaken for the purpose of computing the expenditure in relation to exempt income in accordance with the method as may relation to exempt income in accordance with the method as may relation to exempt income in accordance with the method as may be prescribed. The Assessing Officer is not be prescribed. The Assessing Officer is not required to quantify the required to quantify the amount prior to the invocation of Rule 8D. amount prior to the invocation of Rule 8D.
For an Assessing Officer not to be satisfied with the correctness 35. For an Assessing Officer not to be satisfied with the correctness 35. For an Assessing Officer not to be satisfied with the correctness of the claim of the assessee, it is not necessary for him to determine of the claim of the assessee, it is not necessary for him to determine of the claim of the assessee, it is not necessary for him to determine t income. Indeed, if the expenditure incurred for earning the exemp the expenditure incurred for earning the exempt income. Indeed, if that were so, Rule 8D would be redundant. It is sufficient for the that were so, Rule 8D would be redundant. It is sufficient for the that were so, Rule 8D would be redundant. It is sufficient for the Assessing Officer to come to the conclusion that the claim of the Assessing Officer to come to the conclusion that the claim of the Assessing Officer to come to the conclusion that the claim of the assessee is not correct. assessee is not correct. It is not necessary, however, for him to It is not necessary, however, for him to determine the extent to which it is determine the extent to which it is incorrect in order to resort to incorrect in order to resort to Rule 8D.
There would be several instances where an Assessing Officer can 36. There would be several instances where an Assessing Officer can 36. There would be several instances where an Assessing Officer can come to the conclusion that the claim is incorrect but would be come to the conclusion that the claim is incorrect but would be come to the conclusion that the claim is incorrect but would be unable to assess the extent of the inaccuracy. That is precisely the unable to assess the extent of the inaccuracy. That is precisely the unable to assess the extent of the inaccuracy. That is precisely the purpose of Rule 8D. For instance in the present case, the Assessing Rule 8D. For instance in the present case, the Assessing Rule 8D. For instance in the present case, the Assessing Officer was entitled to presume that a part of the expenses from the Officer was entitled to presume that a part of the expenses from the Officer was entitled to presume that a part of the expenses from the common fund are attributable to the expenditure incurred for common fund are attributable to the expenditure incurred for common fund are attributable to the expenditure incurred for earning the exempt income. He was entitled to resort to Rule 8D earning the exempt income. He was entitled to resort to Rule 8D earning the exempt income. He was entitled to resort to Rule 8D without determining the amount expended by the assessee towards ut determining the amount expended by the assessee towards ut determining the amount expended by the assessee towards earning the exempt income. Indeed if he could have done so, it earning the exempt income. Indeed if he could have done so, it earning the exempt income. Indeed if he could have done so, it would not have been necessary for him to resort to Rule 8D at all. would not have been necessary for him to resort to Rule 8D at all. would not have been necessary for him to resort to Rule 8D at all.
It follows, therefore, that Mrs. Suri's submission that a 37. It follows, therefore, that Mrs. Suri's submission that a 37. It follows, therefore, that Mrs. Suri's submission that a determination means an actual quantification of the expenditure mination means an actual quantification of the expenditure mination means an actual quantification of the expenditure incurred for earning exempt income is erroneous. As Mr. Klar incurred for earning exempt income is erroneous. As Mr. Klar incurred for earning exempt income is erroneous. As Mr. Klar rightly pointed out an Assessing Officer can on the basis of rightly pointed out an Assessing Officer can on the basis of rightly pointed out an Assessing Officer can on the basis of inferences, adverse inferences and reasonable presumptions come inferences, adverse inferences and reasonable presumptions come inferences, adverse inferences and reasonable presumptions come
M/s Aachman Vanijya Pvt. Ltd. M/s Aachman Vanijya Pvt. Ltd. 11 ITA No. 1509/M/2021 to the conclusion that the claim of the assessee in relation to such lusion that the claim of the assessee in relation to such lusion that the claim of the assessee in relation to such expenditure is not correct. expenditure is not correct.
In the case before us, the Assessing Officer cannot be faulted for 38. In the case before us, the Assessing Officer cannot be faulted for 38. In the case before us, the Assessing Officer cannot be faulted for not being satisfied with the claim of the assessee. As we noted not being satisfied with the claim of the assessee. As we noted not being satisfied with the claim of the assessee. As we noted earlier the Assessing Officer was e earlier the Assessing Officer was entirely justified in presuming that ntirely justified in presuming that the assessee had incurred expenditure lowards administrative the assessee had incurred expenditure lowards administrative the assessee had incurred expenditure lowards administrative activities nocossary to earn the exempt incore. If the presumption or activities nocossary to earn the exempt incore. If the presumption or activities nocossary to earn the exempt incore. If the presumption or inference is correct, as we have held it is, the Assessing Officer is inference is correct, as we have held it is, the Assessing Officer is inference is correct, as we have held it is, the Assessing Officer is entitled to resort entitled to resort to Rule 8D.
We are, however, unable to agree with Mr.Klar that the assessee 39. We are, however, unable to agree with Mr.Klar that the assessee 39. We are, however, unable to agree with Mr.Klar that the assessee is estopped from challenging the Assessing Officer's application of is estopped from challenging the Assessing Officer's application of is estopped from challenging the Assessing Officer's application of Rule 8D, as the assessee had itself furnished its working under Rule Rule 8D, as the assessee had itself furnished its working under Rule Rule 8D, as the assessee had itself furnished its working under Rule 8D. The assessee furnished a calculatio 8D. The assessee furnished a calculation only to show that the n only to show that the Assessing Officer's calculation is in any event incorrect. That is not Assessing Officer's calculation is in any event incorrect. That is not Assessing Officer's calculation is in any event incorrect. That is not an admission by the assessee that Rule 8D was validly invoked. It an admission by the assessee that Rule 8D was validly invoked. It an admission by the assessee that Rule 8D was validly invoked. It was only an alternative case assuming that Rule 8D was validly was only an alternative case assuming that Rule 8D was validly was only an alternative case assuming that Rule 8D was validly invoked or ought to be invoked. invoked or ought to be invoked.
. The Assessing Officer on not being satisfied with the 40. . The Assessing Officer on not being satisfied with the 40. . The Assessing Officer on not being satisfied with the correctness of the claim by the assessee in respect of the expenditure correctness of the claim by the assessee in respect of the expenditure correctness of the claim by the assessee in respect of the expenditure incurred to earn exempt income ought to have applied Rule 8D incurred to earn exempt income ought to have applied Rule 8D incurred to earn exempt income ought to have applied Rule 8D which he did not. Instead he made an estimate on the basis that which he did not. Instead he made an estimate on the basis that which he did not. Instead he made an estimate on the basis that he considered to be reasonable. This he was not entitled to do. Where considered to be reasonable. This he was not entitled to do. Where considered to be reasonable. This he was not entitled to do. Where an Assessing Officer is not satisfied with the correctness of the claim an Assessing Officer is not satisfied with the correctness of the claim an Assessing Officer is not satisfied with the correctness of the claim of the assessee, in this regard, he is bound by the provisions of sub of the assessee, in this regard, he is bound by the provisions of sub of the assessee, in this regard, he is bound by the provisions of sub section (2) of Section 14A to follow the pre section (2) of Section 14A to follow the prescribed method which at scribed method which at the relevant time was Rule 8D." the relevant time was Rule 8D."
M/s Aachman Vanijya Pvt. Ltd. M/s Aachman Vanijya Pvt. Ltd. 12 ITA No. 1509/M/2021 7.4.3 The appellant has also submitted that the Ld. CIT(A) in 7.4.3 The appellant has also submitted that the Ld. CIT(A) in 7.4.3 The appellant has also submitted that the Ld. CIT(A) in appellant's own case for A.Y. 2012 appellant's own case for A.Y. 2012-13 has allowed relief to the 13 has allowed relief to the appellant on identical facts of the case and placed reliance on the appellant on identical facts of the case and placed reliance on the appellant on identical facts of the case and placed reliance on the same. From perusal of the said decision of the Ld. CIT(A) in From perusal of the said decision of the Ld. CIT(A) in From perusal of the said decision of the Ld. CIT(A) in appellant's own case for A.Y. 2012 appellant's own case for A.Y. 2012-13, it is observed that therein he 13, it is observed that therein he has not considered the above referred decisions of the Hon'ble has not considered the above referred decisions of the Hon'ble has not considered the above referred decisions of the Hon'ble Gujarat High Court in the case of Devarsons Industries P Ltd, Gujarat High Court in the case of Devarsons Industries P Ltd, Gujarat High Court in the case of Devarsons Industries P Ltd, reported in 84 taxmann.com 244 and that of the Hon'ble Punjab & ed in 84 taxmann.com 244 and that of the Hon'ble Punjab & ed in 84 taxmann.com 244 and that of the Hon'ble Punjab & Haryana High Court in the case of Punjab Tractors Ltd reported in Haryana High Court in the case of Punjab Tractors Ltd reported in Haryana High Court in the case of Punjab Tractors Ltd reported in 78 taxmann.com 65. In view of the above discussions, with due 78 taxmann.com 65. In view of the above discussions, with due 78 taxmann.com 65. In view of the above discussions, with due respect to the Ld. respect to the Ld. CIT(A), it is held that the decision rendered by hi CIT(A), it is held that the decision rendered by him in A.Y. 2012-13 in appellant's own case cannot be followed. In view 13 in appellant's own case cannot be followed. In view 13 in appellant's own case cannot be followed. In view of the above discussions, there is no substance in the claim of the of the above discussions, there is no substance in the claim of the of the above discussions, there is no substance in the claim of the appellant that before invoking the provisions of sec 14A rwr 8D, the appellant that before invoking the provisions of sec 14A rwr 8D, the appellant that before invoking the provisions of sec 14A rwr 8D, the Ld. AO has not passed a speaking order on the cla Ld. AO has not passed a speaking order on the cla Ld. AO has not passed a speaking order on the claim of the appellant and hence the same is herewith rejected. appellant and hence the same is herewith rejected.
7.4.4 The Hon'ble Bombay High Court in the case of Godrej and 7.4.4 The Hon'ble Bombay High Court in the case of Godrej and 7.4.4 The Hon'ble Bombay High Court in the case of Godrej and Boyce Mfg. Co Ltd. vs. CIT reported in 328 ITR 81 has held that Boyce Mfg. Co Ltd. vs. CIT reported in 328 ITR 81 has held that Boyce Mfg. Co Ltd. vs. CIT reported in 328 ITR 81 has held that provisions of rule 8D are applicable from the assessment year 2008 provisions of rule 8D are applicable from the assessment year 2008 provisions of rule 8D are applicable from the assessment year 2008- 09 onwards and the same has been confirmed by the Hon'ble onwards and the same has been confirmed by the Hon'ble onwards and the same has been confirmed by the Hon'ble Supreme Court in the case of CIT vs. Essar Teleholdings Ltd, Supreme Court in the case of CIT vs. Essar Teleholdings Ltd, Supreme Court in the case of CIT vs. Essar Teleholdings Ltd, reported in 90 taxmann.com 2. As the assessment year involved is reported in 90 taxmann.com 2. As the assessment year involved is reported in 90 taxmann.com 2. As the assessment year involved is 2016-17, so in present assessment year the provisions of Rule 8D are 17, so in present assessment year the provisions of Rule 8D are 17, so in present assessment year the provisions of Rule 8D are applicable. In this respect it is observed that recently, the Hon'ble cable. In this respect it is observed that recently, the Hon'ble cable. In this respect it is observed that recently, the Hon'ble Supreme Court in the case of Maxopp Investment Ltd vs CIT Supreme Court in the case of Maxopp Investment Ltd vs CIT Supreme Court in the case of Maxopp Investment Ltd vs CIT reported in 402 ITR 640 has put rest to many controversies under reported in 402 ITR 640 has put rest to many controversies under reported in 402 ITR 640 has put rest to many controversies under sec 14A of the Act. The Hon'ble Supreme Court held that if sec 14A of the Act. The Hon'ble Supreme Court held that if sec 14A of the Act. The Hon'ble Supreme Court held that if expenditure is incurred on earning the dividend income that much re is incurred on earning the dividend income that much re is incurred on earning the dividend income that much of the expenditure which is attributable to the dividend income has of the expenditure which is attributable to the dividend income has of the expenditure which is attributable to the dividend income has M/s Aachman Vanijya Pvt. Ltd. M/s Aachman Vanijya Pvt. Ltd. 13 ITA No. 1509/M/2021 to be disallowed and cannot be treated as business income. The uses to be disallowed and cannot be treated as business income. The uses to be disallowed and cannot be treated as business income. The uses of word 'in relation to the income' in sec 14A of the Act brings of word 'in relation to the income' in sec 14A of the Act brings of word 'in relation to the income' in sec 14A of the Act brings the principle of apportionment of expenses into play and that is the principle of apportionment of expenses into play and that is the principle of apportionment of expenses into play and that is the principle which is engrained in sec 14A of the Act, which was so held principle which is engrained in sec 14A of the Act, which was so held principle which is engrained in sec 14A of the Act, which was so held in the case of Walfort Share & Stock Brokers P Ltd. The Delhi High in the case of Walfort Share & Stock Brokers P Ltd. The Delhi High in the case of Walfort Share & Stock Brokers P Ltd. The Delhi High Court, therefore, correctly observed that prior t Court, therefore, correctly observed that prior to introduction of o introduction of Section 14A of the Act, the law was that when an assessee had a Section 14A of the Act, the law was that when an assessee had a Section 14A of the Act, the law was that when an assessee had a composite and indivisible business which had elements of both composite and indivisible business which had elements of both composite and indivisible business which had elements of both taxable and non taxable and non-taxable income, the entire expenditure in respect of taxable income, the entire expenditure in respect of said business was deductible and, in such a said business was deductible and, in such a case, the principle of case, the principle of apportionment of the expenditure relating to the non apportionment of the expenditure relating to the non apportionment of the expenditure relating to the non-taxable income did not apply. The principle of apportionment was made income did not apply. The principle of apportionment was made income did not apply. The principle of apportionment was made available only where the business was divisible. It is to find a cure to available only where the business was divisible. It is to find a cure to available only where the business was divisible. It is to find a cure to the aforesaid problem that the Legis the aforesaid problem that the Legislature has not only inserted lature has not only inserted Section 14A by the Finance (Amendment) Act, 2001 but also made it Section 14A by the Finance (Amendment) Act, 2001 but also made it Section 14A by the Finance (Amendment) Act, 2001 but also made it retrospective, i.e., 1962 when the Income Tax Act itself came into retrospective, i.e., 1962 when the Income Tax Act itself came into retrospective, i.e., 1962 when the Income Tax Act itself came into force. The aforesaid intent was expressed loudly and clearly in the force. The aforesaid intent was expressed loudly and clearly in the force. The aforesaid intent was expressed loudly and clearly in the Memorandum explaining the Memorandum explaining the provisions of the Finance Bill, 2001. provisions of the Finance Bill, 2001. The Hon'ble Supreme Court in the above referred case has also held The Hon'ble Supreme Court in the above referred case has also held The Hon'ble Supreme Court in the above referred case has also held that the dominant purpose of investment is of no consequence for that the dominant purpose of investment is of no consequence for that the dominant purpose of investment is of no consequence for applicability of provisions of section 14A r.w. Rule 8D applicability of provisions of section 14A r.w. Rule 8D.
7.4.5 In view of the above, n 7.4.5 In view of the above, no fault can be found with the action of o fault can be found with the action of the Ld. AO in invoking the provisions of sec 14A of the Act and the Ld. AO in invoking the provisions of sec 14A of the Act and the Ld. AO in invoking the provisions of sec 14A of the Act and computing disallowance as per Rule 8D. It is also not the case of the computing disallowance as per Rule 8D. It is also not the case of the computing disallowance as per Rule 8D. It is also not the case of the appellant that the disallowance u/s 14A rw Rule 8D exceeds the appellant that the disallowance u/s 14A rw Rule 8D exceeds the appellant that the disallowance u/s 14A rw Rule 8D exceeds the exempt income earne exempt income earned/claimed during the year, as the Ld. AO has d/claimed during the year, as the Ld. AO has given a factual finding that during the year the appellant has given a factual finding that during the year the appellant has given a factual finding that during the year the appellant has received dividend income of Rs.29,42,875/, which has been claimed received dividend income of Rs.29,42,875/, which has been claimed received dividend income of Rs.29,42,875/, which has been claimed as exempt and the total disallowance u/s 14A rw Rule 8D has been as exempt and the total disallowance u/s 14A rw Rule 8D has been as exempt and the total disallowance u/s 14A rw Rule 8D has been M/s Aachman Vanijya Pvt. Ltd. M/s Aachman Vanijya Pvt. Ltd. 14 ITA No. 1509/M/2021 computed at Rs.15 computed at Rs.15,46,646/-, Hence, the impugned disallowance at , Hence, the impugned disallowance at Rs.14,51,111/- - us 14A of the Act is CONFIRMED. Therefore, the Therefore, the Ground No.2 raised in appeal is DISMISSED. Ground No.2 raised in appeal is DISMISSED.” 6.4 We find that main grievance of the assessee before the Ld. We find that main grievance of the assessee before the Ld. We find that main grievance of the assessee before the Ld. CIT(A) was that Rule 8D cannot be invoke CIT(A) was that Rule 8D cannot be invoked automatically without d automatically without recording of dissatisfaction on the account of the assessee by the recording of dissatisfaction on the account of the assessee by the recording of dissatisfaction on the account of the assessee by the Assessing Officer. The Ld. CIT(A) however has relied on the decision Assessing Officer. The Ld. CIT(A) however has relied on the decision Assessing Officer. The Ld. CIT(A) however has relied on the decision of the Hon’ble Gujarat High Court in the case of of the Hon’ble Gujarat High Court in the case of of the Hon’ble Gujarat High Court in the case of Devarsons Industries P. Ltd. reported in 84 tax Industries P. Ltd. reported in 84 taxmann.com 244 mann.com 244, wherein it is held that mere fact that the A held that mere fact that the Assessing Officer did not arrive ssessing Officer did not arrive at satisfaction in a particular manner while making disallowance satisfaction in a particular manner while making disallowance satisfaction in a particular manner while making disallowance would not per se destroy section 14A of the Act. It is undisputed that would not per se destroy section 14A of the Act. It is undisputed that would not per se destroy section 14A of the Act. It is undisputed that assessee did not provide any b assessee did not provide any basis for suo motu disallowance of disallowance of ₹95,538/- u/s 14A of the Act and because of this precise reason, the u/s 14A of the Act and because of this precise reason, the u/s 14A of the Act and because of this precise reason, the Assessing Officer has not accepted the suo motu disallowance made Assessing Officer has not accepted the suo motu disallowance made Assessing Officer has not accepted the suo motu disallowance made by the assessee.
M/s Aachman Vanijya Pvt. Ltd. M/s Aachman Vanijya Pvt. Ltd. 15 ITA No. 1509/M/2021 6.5 Further, we find that Hon’ble Delhi High Court Further, we find that Hon’ble Delhi High Court in decision Further, we find that Hon’ble Delhi High Court dated 21.11.2016 in the case of in the case of Indiabulls Financial Indiabulls Financial Services Ltd. v. DCIT in v. DCIT in ITA No. 470/2016, held that even held that even dissatisfaction recorded impliedly by the Assessing Officer is sufficient to by the Assessing Officer is sufficient to invoke by the Assessing Officer is sufficient to Rule 8D r.w.s. 14A of the Act. Rule 8D r.w.s. 14A of the Act. The relevant finding of the Hon’ble ng of the Hon’ble High Court is reproduced as under: High Court is reproduced as under:
8. In this instance the elaborate analysis carried out by the AO - In this instance the elaborate analysis carried out by the AO In this instance the elaborate analysis carried out by the AO as indeed the three important steps indicated by him in the order, as indeed the three important steps indicated by him in the order, as indeed the three important steps indicated by him in the order, shows that all these elements were present in his mind, that he did shows that all these elements were present in his mind, that he did shows that all these elements were present in his mind, that he did not expressly record his dissatisfaction in these circumstances, not expressly record his dissatisfaction in these circumstances, not expressly record his dissatisfaction in these circumstances, would not per se justify this Court in concluding that he was not would not per se justify this Court in concluding that he was not would not per se justify this Court in concluding that he was not satisfied or did not record cogent reasons for his dissatisfaction to satisfied or did not record cogent reasons for his dissatisfaction to satisfied or did not record cogent reasons for his dissatisfaction to reject the AO's conclusion. To insist that the AO shou reject the AO's conclusion. To insist that the AO should pay such lip ld pay such lip service regardless of the substantial compliance with the provisions service regardless of the substantial compliance with the provisions service regardless of the substantial compliance with the provisions would, in fact, destroy the mandate of Section 14A. would, in fact, destroy the mandate of Section 14A.
6.6 In the circumstances, we do not find any error in the order of In the circumstances, we do not find any error in the order of In the circumstances, we do not find any error in the order of the Ld. CIT(A) on the issue the Ld. CIT(A) on the issue-in-dispute and accordin dispute and accordingly, we uphold the same.
Now we take up the appeal of the assessee for AY 2017-18. As Now we take up the appeal of the assessee for AY 2017 Now we take up the appeal of the assessee for AY 2017 far as ground No. 1 of the appeal of the assessee for AY 2017 far as ground No. 1 of the appeal of the assessee for AY 2017 far as ground No. 1 of the appeal of the assessee for AY 2017-18 is M/s Aachman Vanijya Pvt. Ltd. M/s Aachman Vanijya Pvt. Ltd. 16 ITA No. 1509/M/2021 concerned same is identical to ground No. 2 decided in the case of concerned same is identical to ground No. 2 decided in the case of concerned same is identical to ground No. 2 decided in the case of the assessee for AY 2016 the assessee for AY 2016-17, therefore, following our finding in AY 17, therefore, following our finding in AY 2016-17 this ground of appeal is decided 17 this ground of appeal is decided mutatis mutandis mutatis mutandis. This ground of appeal of the assessee is dismissed. ground of appeal of the assessee is dismissed.
In the result, the result, the both appeals filed by the assessee filed by the assessee are dismissed.