DCIT, CIRCLE- 11(1), NEW DELHI vs. INNUS INFRASTRUCTURE PVT. LTD., NEW DELHI

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ITA 7331/DEL/2017Status: DisposedITAT Delhi03 August 2021AY 2014-153 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 held that the AO's disallowance under Rule 8D was unsustainable as he failed to record his satisfaction regarding the inadequacy of the assessee's suo motu disallowance. The Tribunal confirmed the CIT(A)'s order deleting the AO's disallowance.

What were the facts?

The Assessing Officer (AO) disallowed Rs. 4,35,19,612/- under Section 14A read with Rule 8D, disbelieving the assessee's claim of no exempt income. The assessee had suo motu disallowed Rs. 14,35,709/- against exempt income of Rs. 14,64,100/-.

What were the issues?

Whether the AO properly recorded satisfaction before invoking Rule 8D for disallowance under Section 14A, and if the assessee's suo motu disallowance was adequate.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, DELHI BENCH “C”: NEW DELHI

Before: SHRI KUL BHARAT & SHRI PRASHANT MAHARISHI

For Appellant: Shri Rajhesh Aggarwal, CA
For Respondent: Shri Najmi, CIT DR, Shri Rajhesh Aggarwal, CA
Hearing: 03/08/2021Pronounced: 03/08/2021

O R D E R PER PRASHANT MAHARISHI, A. M. 1. This appeal is filed by ld AO / DCIT, Circle-11(1), New Delhi against the order of the ld CIT(A)-4, New Delhi dated 27.10.2017 for assessment year 2014-15 wherein the disallowances made by the ld AO of Rs. 4,35,19,612/- u/s 14A read with Rule 8D was deleted. This is the solitary ground of appeal raised by the ld AO.

2. Briefly stated the fact shows that the assessee is a company engaged in the business of development of infrastructure and to purchase and sale of residential or commercial projects including its development. The assessee filed its return of income on 24.09.2014 declaring income of Rs. 640/-. The ld AO questioned the assessee as to why disallowance u/s 14A read with Rule 8D should not be made. The assessee submitted a reply which was considered and rejected. The assessee submitted that it has not earned any income which is exempt on its investment and therefore the provisions of section 14A are not applicable. The AO rejected the same relying on the Circular No. 5 of 2014. Therefore, he computed the disallowance u/s 14A of the Act as per para No. 4 wherein indirect expenditure of interest of Rs. 4,21,13,314/- was computed under Rule 8D(2)(i) and sum of Rs. 2,41,973/- under Rule 8D(2)(iii). Total disallowances was computed at Rs. 4,49,55,321/-. He reduced the suo motto disallowances already made in the computation of total income of Rs. 14,35,709/-. Thus, net Page | 1 disallowances of Rs. 4,35,19,612/- was made. Consequently, assessment order u/s 143(3) of the act was passed on 30.03.2016 determining the total income of the assessee of Rs. 4,35,20,252/- against the return income of Rs. 640/- only.

3. The assessee preferred an appeal before the ld CIT(A) who noted that the assessee has suo motto disallowed Rs. 14,35,709/- against the exempt income earned of Rs. 14,64,100/- and therefore, he directed to delete the balance disallowance u/s 14A of the Act. He noted that the assessee has an exempt dividend income of Rs. 14,64,100/- therefore the claim of the assessee is that it has not received any exempt income is incorrect. He found that that the assessee has suo motto disallowed Rs. 14,35,709/-. He noted that the has not recorded his satisfaction that the suo motto disallowances of the assessee of Rs. 1435,309/- is not correct. He further noted that suo motto disallowance is almost equal to the exempt income.

4. The ld AO is aggrieved with the order of the ld CIT(A) and has preferred this appeal on the solitary ground. The ld Sr. DR supported the order of the AO.

5.

On behalf of the assessee none appeared despite notice and therefore the issue is decided on the merits of the case.

6.

We have carefully considered the contentions of the ld Sr. DR as well as orders of the lower authorities. In the present case the assessee has earned exempt income of Rs. 14,64,100/- suo motto disallowance made by assessee is Rs. 14,35,709/-. On the issue of disallowances, there is no satisfaction recorded by the ld AO that how the disallowance offered by the assessee is not correct. However, the disallowance made by the ld AO is almost equal to the amount of exempt income earned by the assessee. When the learned AO does not record any satisfaction with respect to the correctness of the disallowances offered by the assessee u/s 14A , and proceeded to make disallowances on the basis of provision of Rule 8D, it cannot be sustained. The recording of the satisfaction is the basic condition for invoking the provision of Rule 8D. Hon’ble supreme Court in 402 ITR 640 has categorically held so. Therefore, on this ground the disallowance made by the ld AO is not sustainable. Even otherwise the amount of exempt income earned by the assessee i.e. 14,35,309/- which is almost equal to the disallowance offered by the assessee on its own. Therefore, as the ld AO has not recorded a satisfaction about the correctness of the claim of the assessee of incurring expenditure of Rs. 14,35,309/- for earning exempt income having regard to the books of account of the assessee and thereby straight

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