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Before: Shri V. Durga Rao & Shri G. Manjunatha
O R D E R
PER V. DURGA RAO, JUDICIAL MEMBER:
This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals) 15, Chennai dated 28.08.2018 relevant to the assessment year 2012-13. The assessee has raised following grounds of appeal: “1) The Order of the CIT{A) in I.T.A.No.16 1201-1-181 CIT(A)-15 dated 28.08.2018 is against law and facts of the case. 2) The CIT(A) erred in confirming part of the disallowance made u/s14A r.w. Rule 8D 3) The CIT(A) erred in not appreciating the fact that the entire Dividend Income received from Mutual Fund of Rs.29,98,544 was credited to appellant Bank's Account under ECS; that the appellant has already disallowed Rs.4,900 u/s 14A and that Investments in Subsidiary Companies were made as a matter of Commercial Expediency and not with intention of earning exempt income. 4) The CIT(A) erred in not appreciating the fact that investments made during the year and in the earlier year were out of own funds and therefore disallowance under Rule 8D(2)(ii) is not attracted. 5) The CIT(A) erred in not appreciating the fact that the AO has applied Rule 8D without recording having regard to the accounts of the assessee as to why he was not satisfied with the correctness of the amount disallowed by the appellant of Rs.4,900 u/s 14A. In this connection the appellant relies on the following decisions:
1. 1. CIT Vs Taikisha Engineering India Ltd (229 Taxman 143) Delhi HC.
2. CIT Vs I P Support Services India P Ltd ( 378 ITR 240).Delhi HC 6) Without prejudice to the above grounds, the following grounds are raised: i) The CIT(A) erred in overlooking the following decisions wherein it has been held that investments from which no exempt income was received have to be excluded for the purpose of computation of disallowance u/s.14A Rule 8D. a) ITAT Chennai "C" Bench decision in the case of Shriram Ownership Trust in & 407/Mds/2017 dated 05.07.2017. b) REI Agro Ltd Vs DCIT Central Circle XXVII Kolkata (144 ITO 141) c) ITAT Special Bench decision in the case of ACIT Vs Vireet Investments Pvt. Ltd ( 82 Taxmann.com 415). For these and other grounds that may be adduced before or at the time of hearing, the Hon'ble ITAT may be pleased to delete the disallowance made u/s.14A r.w. Rule 8D.”
2. Brief facts of the case are that the assessee has filed its return of income for the assessment year 2012-13 on 25.09.2012 declaring a total income of ₹.5,72,94,570/-. The return filed by the assessee was selected for scrutiny and against the statutory notices, the assessee has furnished the details. After considering the details furnished by the assessee, the Assessing Officer has completed the assessment under section 143(3) of the Income Tax Act, 1961 [“Act” in short] assessing total income of the assessee at ₹.6,79,49,707/- after making various disallowances/additions.
2.1 With regard to the disallowance under section 14A r.w. Rule 8D, in the assessment order, on perusal of the financials of the assessee, the Assessing Officer has noticed that the assessee has investments of ₹.14,64,94,400/-. The assessee has received a dividend income of ₹.29,98,544/- and has disallowed expenses to the tune of ₹.4,900/- under section 14A as expenses pertaining to the exempt income. However, the Assessing Officer invoked the provisions of section 14A r.w. Rule 8D and determined the expenses to the extent of ₹.75,16,020/- and brought to tax. On appeal, the ld. CIT(A) directed the Assessing Officer to restrict the disallowance under section 14A of the Act to the extent of ₹.29,98,544/-.
On being aggrieved, the assessee is in appeal before the Tribunal. By referring to the specific ground No. 5 of the grounds of appeal, the ld. Counsel for the assessee has vehemently argued that when the assessee itself disallowed an amount of ₹.4,900/- under section 14A of the Act, the Assessing Officer has not recorded his satisfaction as to why the amount voluntarily disallowed by the assessee is not sufficient. For the above preposition, the ld. Counsel has relied on the decision of the Hon’ble Supreme Court in the case of Maxopp Investment Ltd. v. CIT (2018) 402 ITR 640 (SC).
4. On the other hand, the ld. DR supported the order passed by the ld. CIT(A).
We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. In this case, the assessee is a non-banking finance company and has investments of ₹.14,64,94,400/-. The assessee has received a dividend income of ₹.29,98,544/- and has suo motu disallowed expenses to the tune of ₹.4,900/- under section 14A as expenses pertaining to the exempt income. However, the Assessing Officer disallowed an additional amount of ₹.75,16,020/-. However, while making additional disallowance under section 14A of the Act, the Assessing Officer has not recorded any satisfaction as to how the claim of the assessee was incorrect and had resorted to the provisions under section 14A r.w. Rule 8D.
Similar issue on identical facts was subject matter in appeal before the Tribunal in the case of Shriram Capital Limited v. DCIT in & 3255/Chny/2018 for the assessment years 2012-13 & 14-15 vide order dated 18.02.2022, wherein, by following Tribunal’s order in that assessee’s own case in which, the decision of the Hon’ble Supreme Court in the case of Maxopp Investment Ltd. v. CIT (supra) has been followed, the Tribunal has observed and held as under: 5. We have heard both the sides, perused the materials available on record and gone through the orders of authorities below including the case law relied on by the assessee. In this case, the assessee is engaged in the business of investment promotion and during the year, the assessee has earned dividend income of ₹.17,10,42,084/-. In the return of income, the assessee has suo motu disallowed ₹.8,000/- under section 14A of the Act. However, the Assessing Officer disallowed an additional amount of ₹.34,28,05,564/-. However, while making additional disallowance under section 14A of the Act, the Assessing Officer has not recorded any satisfaction as to how the claim of the assessee was incorrect and had resorted to the provisions under section 14A r.w. Rule 8D. By relying upon decision of the Tribunal in assessee’s own case for the assessment year 2013- 14, wherein, the decision in the case of Maxopp Investment Ltd. v. CIT (supra) has been followed, the ld. Counsel for the assessee has prayed for following the order of the Tribunal for assessment year under appeal. We have gone through the order of the Tribunal in assessee’s own case for the assessment year 2013-14 in I.T.A. No. 1766/Chny/2019 vide order dated 16.12.2019, wherein, in similar facts and circumstances an identical issue was subject matter in appeal before the Tribunal and the Tribunal has observed and held as under:
“7. We heard the rival submissions and perused the material on record. The only issue in the present appeal relates to disallowance u/s14A of the Act. Admittedly, assessee made investments which yielded dividend income of Rs.61,44,03,001/- and investments were made in subsidiary companies for strategic purpose. Admittedly, assessee itself had offered suo motu disallowance of Rs.73,602/- u/s.14A of the Act. The provisions of Sub Section (2) of Section 14A of the Act provides that resort to provisions u/s.14A of the Act can be made only if he is not satisfied with the correctness of the claim of the assessee in respect of expenditure incurred to earn exempt income. Therefore, it is mandatory on the part of the Assessing Officer to record a satisfaction as to correctness or otherwise of the claim of the assessee regarding expenditure incurred to earn exempt income. In the present case, assessee suo motu offered disallowance of Rs.73,602/-. From the perusal of the assessment order, it is clear that there is no findings by the Assessing Officer as to the correctness or otherwise of the claim of the assessee that only an expenditure of Rs.73,602/- was incurred. In this absences of any findings by the Assessing Officer, resort to provisions of Section 14A of the Act cannot be made as ruled by Hon’ble Bombay High Court in the case of Reliance Capital Asset Management Ltd (supra) and the SLP against this judgment was dismissed by Hon’ble Supreme Court in 259 Taxman 83. The Hon’ble Supreme Court in the case of Maxopp Investment Ltd (supra) has upheld this principle by holding as under:- “41. Having regard to the language of section 14A(2) of the Act, read with rule 8D of the Rules, we also make it clear that before applying the theory of apportionment, the Assessing Officer needs to record satisfaction that having regard to the kind of the assessee, suo motu disallowance under section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the Assessing Officer was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, the nature of the loan taken by the assessee for purchasing the shares/ making the investment in shares is to be examined by the Assessing Officer’’. Recently, the Co-ordinate Bench of the Tribunal to which one of us i.e. the Accountant Member is the author of the order, in the case of City Union Bank Ltd vs. Assistant Commissioner of Income Tax, (2019) 74 ITR Trib (644) Chennai held as follows:- “As regards to other limb of the argument of the assessee that in the absences of any finding by the Assessing Officer as to how the contention of the assessee that no expenditure was incurred is incorrect no disallowance should be made. We find from the assessment order that the assessee bank itself has offered a sum of ₹2,19,751/- under the provisions of Section 14A of the Act. From the perusal of the order of the Assessing Officer, it is clear that the Assessing Officer had not assigned any reason whatsoever as to how the claim of the assessee is incorrect. In the similar facts, the Hon’ble Supreme Court in the case of Maxopp Investment Ltd. vs. CIT, 402 ITR 640 held that in the absence of the finding of the Assessing Officer resort to provisions of Section 14A of the Act r.w.r 8D of the Rules cannot be made. This decision was followed by the Co-ordinate Bench of the Tribunal in the case of Karur Vysya Bank (supra) cited by holding as under:- “Ground No. 8 challenges the addition of ₹3,88,882/- invoking the provision of Section 14A of the Act. It is the contention of the appellant that the appellant had not incurred any expenditure to earn exempt income. The Assessing Officer had not given any findings as to how the claim of the assessee- bank that no expenditure was incurred to earn the exempt income was incorrect. In the absence of this finding resort to the provisions of rule 8D of the Income Tax Rules cannot be made as held by the Hon’ble Supreme Court in the case of Maxopp Investment Ltd vs. CIT, (2018) 402 ITR 640. Therefore this ground of appeal filed by the assessee is allowed. Accordingly, this ground of appeal stands allowed in favour of the assessee’’. Similar view was taken up by the Hon’ble Delhi High Court in the case of CIT vs. Taikisha Engineering India Ltd, 370 ITR 338 and PCIT vs. Moonstar Securities Trading and Finance Co. (P) Ltd, 105 taxmann.com 274. The Hon’ble Delhi High Court had firmly held that mere rejection of the explanation of the assessee per se cannot be accepted. This decision of Delhi High Court in the case of Moonstar Securities Trading and Finance Co. (P) Ltd, was affirmed by the Hon'ble Supreme Court in the case of dismissal of SLP in PCIT vs. Moonstar Securities Trading and Finance Co. (P) Ltd, 105 taxmann.com 274’’. In the light of the above decisions, admittedly, in the present case, the Assessing Officer had not recorded any findings as to the correctness or otherwise of the claim of assessee company that only expenditure of Rs.73,602/- was incurred to earn exempt income. Therefore, the Assessing Officer was not justified in resort to provisions u/s.14A of the Act. Accordingly, no disallowance can be made u/s.14A of the Act.
08. It is unnecessary for us to deal with other arguments made by the assessee since we had held that no resort can be made to provisions of Section 14A of the Act.
09. In the result, the appeal filed by the assessee stands allowed.”
6. Admittedly, in the present case also, against the voluntary disallowance made under section 14A of the Act by the assessee, the Assessing Officer has not recorded any satisfaction as to how the disallowance voluntarily made by the assessee is not correct and moreover, the Assessing Officer has not given any findings in the assessment order with regard to the correctness in respect of expenditure incurred to earn exempt income. The ld. DR could not controvert the decision of the Hon’ble Supreme Court in the case of Maxopp Investment Ltd. v. CIT (supra), which was followed by the Coordinate Benches of the Tribunal in assessee’s own case for the assessment year 2013-14 to decide the issue in favour of the assessee. Thus, respectfully following the decision of the Coordinate Benches of the Tribunal in assessee’s own case for the assessment year 2013-14 as well as the decision of the Hon’ble Supreme Court in the case of Maxopp Investment Ltd. v. CIT (supra), we hold that the Assessing Officer was not justified in making disallowance under section 14A of the Act. Thus, the ground raised by the assessee is allowed.” 6.1 Admittedly, in the present case also, against the voluntary disallowance made under section 14A of the Act by the assessee, the Assessing Officer has not recorded any satisfaction as to how the disallowance voluntarily made by the assessee is not correct and moreover, the Assessing Officer has not given any findings in the assessment order with regard to the correctness in respect of expenditure incurred to earn exempt income. The ld. DR could not controvert the decision of the Hon’ble Supreme Court in the case of Maxopp Investment Ltd. v. CIT (supra), which was followed by the Coordinate Benches of the Tribunal in the above cases to decide the issue in favour of the assessee. Thus, respectfully following the decision of the Coordinate Benches of the Tribunal in the case of Shriram Capital Limited v. DCIT (supra) as well as the decision of the Hon’ble Supreme Court in the case of Maxopp Investment Ltd. v. CIT (supra), we hold that the Assessing Officer was not justified in making disallowance under section 14A of the Act. Thus, the ground raised by the assessee is allowed.”
In the result, the appeal filed by the assessee is allowed.
Order pronounced on 29th March, 2022 at Chennai.