M/S. ENAM ASSET MANAGEMENT COMPANY PRIVATE LIMITED,MUMBAI vs. THE DEPUTY COMMISSIONER OF INCOME TAX, NEAC, NEW DELHI

This appeal in A.Y.2018-19 arises out of the order by the ld. Commissioner of Income Tax (Appeals) National Faceless Appeal Centre (NFAC) in appeal No.NFAC/2017-18/10018117 dated 08/12/2021 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 06/03/2021 by the ld. Income Tax Officer, National e- Assessment Centre, Delhi (hereinafter referred to as ld. AO).

The first issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in confirming the disallowance made u/s 14A of the Act read with Rule 8D(2) of the Income Tax Rules in the facts and circumstances of the case.

We have heard the rival submissions and perused the materials available on record. We find that the assessee company is engaged in the business of asset management including investment and portfolio management mainly in the equity market space. We find that the assessee claimed exempt income of Rs 7,10, 85,048/- in the return of income as under:-

We find that the assessee had voluntarily disallowed a sum of Rs 25,21,223/- u/s 14A of the Act as expenditure incurred for the purpose of earning the aforesaid exempt incomes. The basis of arriving at the aforesaid disallowance of Rs 25,21,223/- was given by the assessee as under:- Expenses allocated / apportioned Amount (Ri.) Total Custody and transaction Charges 50,000 on investment 50% salary of one accountant 7,59,700 Two Director's Remuneration for 15 10,65,670 days

We find that the ld. AO without recording any dissatisfaction as to how the disallowance made by the assessee is incorrect, directly proceeded to apply the computation mechanism provided in Rule 8D(2) of the Rules which is revised from 2.6.2016 and made disallowance u/s 14A of the Act as under:-

This action of the ld. AO was upheld by the ld. CIT(A) in NFAC. We find that the Hon’ble Supreme Court in the case of Maxopp Investments Ltd reported in 402 ITR 640 (SC) had categorically held that it is incumbent on the part of the ld. AO to record his dissatisfaction as to why the disallowance made by the assessee is incorrect having regard to the books of accounts of the assessee. This dissatisfaction has to be recorded with cogent reasons with complete objectivity. None of these guidelines of the Hon’ble Supreme Court had been followed by the ld. AO in the instant case. We find that the ld. AO directly held that the disallowance computed by the assessee voluntarily is not in consonance with computation mechanism provided in Rule 8D(2) of the Rules and proceeded directly to make disallowance thereon. This action has been M/s. Enam Asset Management Co. Pvt. Ltd., approved by the ld. CIT(A). This goes to prove that both the lower authorities had completely not applied their mind at all , which fact is also evident from various cut and paste errors in the orders passed by the ld. AO as well as by the ld. CIT(A) with incomplete sentences thereon. Hence respectfully following the decision of Hon’ble Supreme Court referred to supra, we direct the ld. AO to delete the disallowance made u/s 14A of the Act in the sum of Rs 1,66,51,492/-. Accordingly, the Ground No. 1 raised by the assessee is allowed.

The Ground No. 2 raised by the assessee was stated to be not pressed at the time of hearing by the ld. AR. The same is reckoned as a statement made from the Bar and hence dismissed as not pressed.

The Ground No. 3 raised by the assessee is challenging the initiation of penalty proceedings u/s 270A of the Act which would be premature for adjudication at this stage. Hence dismissed.

The Ground No. 4 raised by the assessee is general in nature and does not require any specific adjudication.

In the result, the appeal of the assessee is partly allowed.