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Income Tax Appellate Tribunal, ‘G‘ BENCH
Before: SHRI SAKTIJIT DEY & SHRI M.BALAGANESH&
आदेश / O R D E R PER M. BALAGANESH (A.M):
These appeals in 3249/Mum/2018 for A.Y.2013-14 & 2014-15 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-9, Mumbai in appeal No.CIT(A)- 9/Cir.3/T.206/2016-17 dated 30/04/2019 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961
3249/Mum/2018 M/s. Shardul Securities Ltd., (hereinafter referred to as Act) dated 27/02/2016 by the ld. Dy. Commissioner of Income Tax-3(3)(1), Mumbai (hereinafter referred to as ld. AO). (A.Y.2013-14)
The only effective issue to be decided in this appeal is with regard to disallowance made u/s.14A of the Act r.w.Rule 8D(2) of the Income Tax Rules (Rules).
We have heard rival submissions and perused the materials available on record. We find that assessee company is a limited company engaged in the business of leasing, finance, investment and advisory services. The assessee had received dividend income of Rs. 83,68,000/- which is claimed as exempt u/s.10(34) of the Act and long term capital gain of Rs.1,16,44,309/- which is claimed as exempt u/s.10(38) of the Act. The assessee had voluntarily disallowed a sum of Rs.4,98,960/- rounded off to 4,99,000/- u/s.14A of the Act. The ld. AO rejected the workings of disallowance u/s.14A of the Act and proceeded to apply the computation mechanism provided under Rule 8D (2) of the Rules as under:-
i) Under Rule 8D(2)(ii) - Rs.46,24,637/- ii) Under Rule 8D(2)(iii) - Rs. 21,72,398/- Total Rs.67,97,035__ Less Voluntary disallowance made By the assessee - Rs.4,99,000___ Remaining disallowance u/s.14A Of the Act - Rs.62,48,035 ==========
3249/Mum/2018 M/s. Shardul Securities Ltd., 3.1. This sum of Rs.62,48,035/- was added by the ld. AO u/s.14A of the Act both under normal provisions of the Act as well as in the computation of book profits u/s.115JB of the Act. The ld. CIT(A) deleted the disallowance of interest made under rule 8D(2)(ii) of the Rules by giving a categorical finding that assessee is having sufficient interest free funds in its kitty to make investments. With regard to disallowance made under Rule 8D(2) (iii) of the Rules, the ld. CIT(A) observed that the voluntary disallowance made by the assessee in the sum of Rs.4,98,960/- was insufficient and not satisfactory and accordingly, upheld the action of the ld. AO.
3.2. We find that voluntary disallowance of Rs.4,98,960/- made by the assessee u/s.14A of the Act was made by taking into account employee cost of specific employees dealing with the investment activities together with certain administrative expenses. The basis of working out the said disallowance of expenditure is tabulated in page 4 of the order.
Particulars Amount Amount disallowed percentage of disallowance Vidya Puthran (salary) 2.00,000 100% 2,00,000 7,50,000 15% 1,12,500 Tarun Chaturvedi (Salary) 1,57,456 15% 23,618 Telephone 86,394 12,959 Postage & Telegram 15% 66,381 9,957 Charges 15% 49,925 100% 49,925 Securities Transaction Tax Rent for Table Space 90,000 100% 90,000 Total 4,98,960
3249/Mum/2018 M/s. Shardul Securities Ltd., 3.3. We find from the perusal of the entire assessment order that the ld. AO had not recorded any satisfaction in terms of Section 14A(2) of the Act r.w.Rule 8D(1) of the Rules as to how the voluntary disallowance made by the assessee is incorrect. Both the lower authorities have directly applied the computation mechanism provided in Rule 8D(2) (iii) of the Rules, without recording the mandatory satisfaction in terms of Section 14A(2) of the Act r.w.Rule 8D(1) of the Rules having regard to the books of accounts of the assessee with cogent reasons. We find that assessee has been consistently following this method of identifying specific employees involved in investment activities and administrative expenses for the purpose of working out the disallowance u/s.14A of the Act from A.Y.2012-13 to A.Y.2016-17 onwards. Similar issue had crept up for A.Y.2015-16 and 2016-17 in assessee’s own case wherein this Tribunal in & 355/Mum/2020 dated 02/08/2021 by placing reliance on the decision of the Hon’ble Supreme Court in the case of Godrej & Boyce Manufacturing Co. Ltd., vs. DCIT reported in 394 ITR 449 had held that the ld. AO had failed to record any objective satisfaction as to why the assessee’s stand was not acceptable having regard to the accounts of the assessee as per the mandate of Section 14A of the Act. This Tribunal also placed reliance on the decision of the Hon’ble Supreme Court in the case of Maxopp Investments Ltd., reported in 402 ITR 640 wherein it was held that it is mandatory on the part of the ld. AO to record the satisfaction with cogent reasons in terms of Section 14A(2) and 14A(3) of the Act r.w.Rule 8D(1) of the Rules before resorting to computation mechanism provided in Rule 8D(2) of the Rules. Since, no satisfaction has been recorded in the instant case by the ld. AO, we hold that we have no hesitation in directing the ld. AO to delete the disallowance of administrative expenses made u/s.14A of the Act r.w.Rule 8D(2) (iii) of 3249/Mum/2018 M/s. Shardul Securities Ltd., the Rules. In effect, the suomoto disallowance made by the assessee in the sum of Rs.4,98,960/- shall remain both under normal provisions of the Act as well as in the computation of book profits u/s.115JB of the Act.
4. Since, entire relief is granted to the assessee on the issue of disallowance u/s.14A of the Act, the additional ground No.2 raised by the assessee need not be gone into.
The additional ground No.3 raised by the assessee is only challenging disallowance of expenses u/s.14A r.w.Rule 8D(2) of the Rules u/s.115JB of the Act. This we have already covered while addressing the main issue hereinabove. Accordingly, the additional ground No.3 raised by the assessee is admitted and allowed.
In the result, appeal of the assessee in is allowed.
ITA No.3249/Mum/2018 (A.Y.2014-15)
5. The facts in dispute are exactly identical to that of A.Y.2013-14 and hence, the decision rendered by us for A.Y.2013-14 would apply with equal force for A.Y.2014-15 except with variance in figures.
3249/Mum/2018 M/s. Shardul Securities Ltd.,
In the result, both the appeals of the assessee are allowed.
Order pronounced on 08/10/2021 by way of proper mentioning in the notice board.