ALF ENGINEERING PVT. LTD.,NASHIK vs. DCIT 12 (1)(1), MUMBAI

The assessee has filed the appeal against the order of the Commissioner of Income Tax (Appeals)-, 20 Mumbai, passed u/s 143(3) and 250 of the Act. The assessee has raised the following grounds of appeal:

Aggrieved by the order, the assessee has filed an appeal before the CIT(A). Whereas, the CIT(A) has confirmed the action of the A.O and dismissed the assessee’s appeal. Aggrieved by the order of the CIT(A) the assessee has filed an appeal before the Honble Tribunal.

At the time of hearing, the Ld. AR submitted that the CIT(A) has erred in sustaining the addition of the A.O. irrespective of the fact that the assessee has voluntary made disallowance of Rs. 6,50,000/-.The assessee has made investments in Reliance Mutual M/s ALF Engineering Pvt Ltd, Mumbai - 4 - Fund units out of the own funds and there is no satisfaction recorded by the A.O in the assessment order on applying the provisions of sec14A r.w.r 8D(2) (iii) of the I T Rules and referred to the submissions and prayed for allowing the assessee appeal.

Contra, the Ld. DR supported the order of the CIT(A) and submitted that the A.O has made the observations in para 8.1 of the assessment order and there cannot be any dispute with respect to the satisfaction made in the assessment order.

We heard the rival submissions and perused the material on record. Prima-facie, the sole crux of the disputed issue is with respect to applicability of provisions of Sec 14A r.w.r 8D(2)(iii) by the A.O though the assessee has made suo moto disallowance of Rs. 6,50,000/-.The contentions envisaged by the Ld. AR that the A.O has not recorded the satisfaction in the assessment order before applying the provisions of Rule 8D(2)(iii) in the assessee’s case. On perusal of the Assesseement order, we found that the A.O. has only dealt on the facts at Para 5.1 to 5.2 of the order. and there is no satisfaction recorded on applicability of Rule 8D. The Ld. DR has referred to the assessment M/s ALF Engineering Pvt Ltd, Mumbai - 5 - order but could not substantiate that the satisfaction is recorded by the A.O. and the provisions are applicable. The Ld.AR’s contentions are that the investments are made out of own funds and the dividend income is claimed exempted. The Ld.AR relied on the judicial decisions in respect of non recording of the satisfaction by the A.O. as under: 1) Principal C.I.T. vs. DSP Adiko Holdings Private Limited - 414 1 T 555 (Bom.) Section 14A of ITA, 1961 r.w.r. 8D (2) (iii) of ITR 1962 - Exempt Income - Disallowance of expenditure relating to exempt income - Voluntary disallowance by assessee of expenditure incurred to earn exempt income - A 0 can-not disallow expenditure far in excess of what has been disallowed by assessee. 2) P.C.1.T. vs. Reliance Capital Asset Management Limited (Bombay High Court) - Income Tax Appeal No. 487 of 2015, it was held that "S. 14A/Rule 8D: The Assessing Officer is not entitled to make any disallowance under rule 8D if he does not specifically record that he is not satisfied with the correctness of the assessee's claim. The fact that the C.I.T. (A) and I.T.A.T. were not satisfied with the assessee's disallowance and enhanced, it does not mean that Rule 8D becomes applicable and the disallowance should be computed as per the prescribed formula. 3) South Indian Bank Limited vs. C.I.T. (Supreme Court of India) Civil Appeal No. 9606 of 2011. Sub - whether proportionate disallowance of interest paid by the banks is called for under section 14A of the Income Tax Act for investments made in tax free Bonds / Securities which M/s ALF Engineering Pvt Ltd, Mumbai - 6 - yield tax free dividend and interest to assessee Banks when assessee had sufficient interest free own funds which were more than the investments made".

We considering the overall facts and circumstances find that the submissions made by the Ld.AR are realistic and further evident from the assessment order, that there is no satisfaction recorded by the A.O for making further disallowance u/sec14A r.w.r 8D2(iii) of IT rules. Accordingly, we set aside the order of the CIT(A) and direct the A.O to delete the additional disallowance and allow the grounds of appeal