ELDELWEISS SECURITIES LTD,MUMBAI vs. ACIT CIRCLE 4(1) (1) , MUMBAI

ITA No. 92/Mum/2022 is filed by the assessee against the order passed by the Commissioner of Income-tax (Appeals)-47, Mumbai [CIT (A)] dated 26th November, 2021, confirming the disallowance u/s 14A of The Income Tax Act [ The Act] read with Rule 8D of the Income Tax Rules, 1962 (the Rules) of ₹7,31,84,746/- and further enhancing the disallowance by ₹7,31,84,745/-invoking amendment in that rule.

Assessee has raised the following grounds of appeal:-

The learned Assessing Officer found that assessee has earned exempt income of dividend amounting to ₹80,75,88,816/- and has suo motto computed disallowance of ₹12,06,069/- under Section 14A of the Act. The learned Assessing Officer specifically asked that why the disallowance under Section 14A of the Act should not be made as per Rule 8D of the Rules. The assessee submitted on 2nd January, 2019, stating that there is no further disallowance warranted as assessee has made disallowance of Rs 12,06,069/- giving details of such working. The learned Assessing Officer rejected the contention of the assessee and held that assessee cannot earn dividend income of ₹80.75 crores without any systematic management of its investment portfolio. Further, the assessee has not maintained separate accounts for its taxable and exempt income and therefore, he invoked Rule 8D of the Rules and rejected the suo motto disallowance of ₹12,06,069/-. He computed the disallowance under Rule 8D of the Rules in clause (i) ₹ nil, clause (ii) ₹ 28,12,195/- and clause (iii) ₹ 7,43,90,815/-. On the basis of this total disallowance after reducing suo motto disallowance made by the assessee was worked out at ₹ 7,31,84,746/-. The

This order was challenged before the learned CIT (A). The learned CIT (A) rejected the argument of the assessee that Rule 8D has been invoked without recording any satisfaction under Section 14A (2) of the Act. The learned CIT (A) referred to Para no. 5 and held that proper satisfaction is recorded. The learned CIT (A) further noted that all the assets either yielded exempt income during the year or could yield in future, those assets should be considered for working out disallowance. Therefore, he rejected contention of assessee that only exempt income yielding assets should be considered for disallowance. He therefore upheld the disallowance of ₹7,31,84,746/-. The learned CIT (A) further noted that the learned Assessing Officer has failed to consider the amount disallowable under Rule 8D(2) of the Rules in the final computation of disallowance and therefore, he enhanced the disallowance by ₹28,12,000/- to be included. He further analyzed the annual accounts of the assessee and held that assessee has used mixed funds. He also invoked the new amended Rule where 1% of the annual average investment is required to be disallowed. Therefore, he computed 1% of such amount at ₹14,87,81,629/- and enhanced the disallowance by ₹7,31,84,745/-. He held that new amended rules of computation under Rule 8D of the Rules will apply as assessing officer has passed an order on 22nd

The learned Authorized Representative submitted that:-

The learned Departmental Representative vehemently supported the order of the learned Assessing Officer. He also supported the order of the learned CIT (A) vide Para no. 9.2. He submitted that the learned CIT (A) extracting Para 5 of the assessment order has categorically held that there is a satisfaction recorded with respect to disallowance computed by the assessee. On the issue of quantum of disallowance, he supported the orders of the lower authorities.

We have carefully considered the rival contentions and perused the orders of the lower authorities. The ground no. 1 is with respect to the disallowance confirmed and enhanced by the learned CIT (A) under Section 14A read with rule 8D of the Rules. Admittedly, the assessee has earned exempt income of ₹80,75,88,086/-. The assessee has made suo motto disallowance under Section 14A of the Act of ₹12,06,069/-. As per Para no. 5, the learned Assessing Officer has noted that assessee was specifically asked vide notice dated 5th November 2018 that why the disallowance under Section 14A of the Act should not be made as per Rule 8D of the Rules. Assessee submitted reply on 2nd January 2019, stating that no further disallowance was warranted. The working of disallowance

The provision of section 14A(2) specifically provides that the learned Assessing Officer was determined the amount of expenditure incurred in relation to exempt income in accordance with method described. Naturally, such

Section 14A (2) & (3) provides as under :-

The Hon'ble Bombay High Court in PCIT vs. Bombay Stock Exchange Limited (supra) in Para no. 11 it is held that non satisfaction with the disallowance offered by the assessee has to be arrived at on the basis of accounts submitted by the assessee if the learned Assessing Officer has not carried out the aforesaid exercise but rejecting the disallowance offered by the assessee only on the ground that it was not in accordance with Rule 8D of the Rules the application of Rule 8D of the Rules would only arise once the learned Assessing Officer is not satisfied on an objective criteria in the context of its accounts that suo motto offered by the assessee is not proper. Honourable High court held that :-

The Hon'ble High Court also quoted the decision of Hon'ble Supreme Court in Maxopp Investment Ltd. Vs. CIT 301 CTR 489, wherein it is held that only after the satisfaction recorded under Section 14A of the Act (2), the occasion to apply Rule 8D of the Rules for apportionment of expenses can arise. It was held that :-

So is also held by Hon'ble Bombay High Court in case of PCIT Vs. Bajaj finance Limited 309 CTR 28 (Bom). In Para no. 9 Hon'ble High Court deleted the disallowance under Rule 8D of the Rules for the reason that the assessee offered voluntarily and made detail representation with no other expenditure is incurred by assessee, the learned Assessing Officer rejected the explanation of the assessee but merely proceeded to make disallowance by invoking Rule 8D of the rules.

Undoubtedly, similar view has been taken in assessee’s own case for A.Y. 2010-11.

Circular No 14/2006 dated 28/12/2006 also provides that :-

In this background, it is required to be seen that how the learned Assessing Officer has satisfied himself about the incorrectness of the claim of disallowance offered by the assessee. The learned CIT (A) has held that in paragraph no. 5, the learned Assessing Officer has recorded the satisfaction. As per Para no. 5 of the assessment order the learned Assessing Officer held as under:-

On careful reading of the above assessment order it is amply clear that the learned Assessing Officer has not at all recorded any satisfaction ‘with regard to accounts’ that how the disallowance offered by the assessee is incorrect. Though, Assessee has given complete list of expenditure, which contained 13 types of expenditure. Assessee has worked out proportionate expenditure of disallowance giving allocation key of percentage of employee cost and this worked out such disallowance at ₹12,06,069/- out of the total expenditure of ₹84,52,25,428/-. Assessee has also submitted before him that no interest expenditure is incurred as assessee has higher interest free funds available. Despite this, the learned Assessing Officer noted only general observation and proceeded to disallow under Rule 8D of the Rules. We do not find any reference to nature of expenditure incurred by the assessee and quantum of expenditure disallowed by the assessee with regard to books of accounts that how it is it inadequate or incorrect. Merely noting general observations does not satisfy requirement of section 14A (2) of the Act. Thus, we hold that the learned Assessing Officer has failed to record satisfaction about incorrectness of voluntarily

Ground no. 2 is with respect to the claim of TDS credit of ₹2,93,74,400/-. In the return of income assessee has claimed TDS credit of ₹51,84,18,963/-, the learned Assessing Officer restricted at the time of assessment order it to ₹48,90,44,563/-. Thus, there was a short credit of ₹2,93,74,400/-. The matter was agitated before the learned CIT (A), the TDS credit was rejected. He noted that TDS paid to the credit of Central Government in next year would be reflected in form no. 26AS for next year and therefore, a sum of ₹71,50,215/- out of the above credit can be granted to the assessee only in the year in which it

The learned Authorized Representative referred to page no. 63 of the paper book and submitted that there is a detail reconciliation provided in the return of income. He submitted that if tax is deposited by the deductor in subsequent year but if the income offered is in the current year the assessee should be granted credit for TDS in the year in which income is offered. He further stated that at page no. 66 of the Paper Book, assessee has given the working of the Foreign Tax Credit, which is available

The learned Departmental Representative supported the order of the learned Commissioner of Income tax (Appeals).

We have carefully considered the rival contentions as well as perused the orders of the lower authorities. In the present case, assessee has claimed TDS credit of ₹51,84,18,963/- in its return of income. ₹48,90,44,563/- was allowed as credit by the learned Assessing Officer. Thus, there is a short credit of TDS of ₹2,93,74,400/-. A sum of ₹32,04,902/- is the TDS which did not appear in form no. 26AS of the assessee for A.Y. 2016-17 but appeared in form no. 26AS of A.Y. 2017-18. Therefore, there is no dispute in the case of that the tax deducted has not been deposited by the deductor. The issue in which year the assessee should be granted the credit for tax deducted at source. We find that provision of section 199 clearly shows that the year in which the assessee offers the income on which tax is deducted, for that year, credit for TDS should be allowed. Accordingly, we direct the learned Assessing Officer to grant assessee the credit

In the result, the appeal filed by the assessee is partly allowed.

The assessee filed return of income on 29th November, 2017 at ₹52,92,86,530/-. It was revised on 23rd March 2018 at ₹53,3841,210/-. It was further revised on 28th March 2019 at ₹40,60,90,400/-. The assessee has earned a dividend income of ₹101,01,54,794/- and has offered suo motto disallowance under Section 14A of the Act of ₹8,78,190/-. The learned Assessing Officer similar to the facts for A.Y. 2016-17 invoked the provisions of Rule 8D of the Rules and made a disallowance of ₹15,78,402/-. Thus, the net addition / disallowance of ₹15,70,212/- was made and assessment order under Section 143(3) of the Act was

The learned Authorized Representative invoking the ground no. 1 stated that facts are identical to the facts for A.Y. 2016-17 that was also confirmed by the learned Departmental Representative.

We have carefully considered the rival contentions and perused the orders of the lower authorities. As ground no. 1 of the appeal is identical to the facts for A.Y. 2016-17, except the disallowance offered by the assessee and disallowance confirmed by the lower authorities. In the present case, the details of the voluntary disallowance offered appears at page no. 6 and 7 and order of the learned CIT (A) where out of the total expenditure of ₹107,45,57,699/-, assessee taking the employ cost as allocation key offered disallowance of ₹8,78,190/- towards various expenditure. It was stated that no other expenditure is incurred and interest expenditure cannot be considered in view of availability of higher interest free funds available with the assessee. On this explanation, no satisfaction is recorded by the learned Assessing Officer about the incorrectness of the claim with regard to the accounts of the assessee. Therefore, for the reason given by us in A.Y. 2016-17 we also hold that no further disallowance can be made. Accordingly, we direct the learned Assessing Officer to retain the disallowance under

Ground No 3 was not pressed and hence, dismissed.

In the result, ITA No. 93/Mum/2022 filed by the assessee is partly allowed.

The brief fact of the case shows that assessee is a share broker company. It filed its return of income on 30th November, 2017, declaring total income of `27,74,88,130/- under normal provision and book profit was computed under Section 115JB of the Act at `28,81,99,511/–. Subsequently, the return was revised on 25 March 2019, at `14,79,59,180/–. The case of the assessee was picked up for scrutiny. During the assessment proceedings, the assessee has earned dividend income of `7,87,624/– against which the assessee has offered disallowance under Section 14A of the Act of `12,81,856/–. The learned Assessing Officer rejected the disallowance offered by the assessee and computed the disallowance applying rule 8D of the Rules of `3,22,49,850/–. Therefore, the balance amount of `3,09,68,694/– is added to the total income of the assessee as disallowance and total income of the assessee is computed at `17,89,57,873/– by an assessment order dated 23rd December, 2019 passed under Section 143(3) of the Act.

The assessee preferred the appeal before the National Faceless Centre (NFAC) which dismissed the appeal of the assessee by stating that assessee has opted for Vivad se Vishwas Scheme.

The learned Departmental Representative supported the order of the learned Assessing Officer.

We have carefully considered the rival contention and perused the orders of the lower authorities. The facts

In view of our decision in ground no. 2, the ground no. 1 becomes infructuous and hence, dismissed.

Accordingly, appeals of the assessee are partly allowed.