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Income Tax Appellate Tribunal, ‘A’ BENCH, PUNE
ORDER
PER VISWANETHRA RAVI, JUDICIAL MEMBER
This appeal by the assessee against the order dated 25-07-2019 passed by the Commissioner of Income Tax (Appeals)-9, Pune [„CIT(A)‟] for assessment year 202-13.
The brief facts relating to the issue on hand are that the assessee is a company engaged in the business of on-site and off-shore software development serving numerous customers and industries. The assessee declared exempt income of Rs. 3,43,97,776/- on account of dividend and disallowed on its own expenditure of Rs. 10,74,090/- attributable to the earning of the said exempt income. The A.O requested the assessee to explain as to why the provisions of section 14A should not be invoked to work out the disallowance under Rule 8D of the Income-tax Rules, 1962 (“the Rules” for short). In response to the said show cause, the assessee submitted its written submissions on 23-3-2016 which is reproduced by the A.O in his order at page 3 to 11. Considering the said written submissions along with the case-laws, the A.O disallowed Rs. 20,95,596/- under Rule 8D(2)(iii) of the Rules taking into
Birlasoft Ltd. A.Y. 2012-13 consideration the average value of investments at Rs. 41,91,19,138/- vide his order dated 23-3-2016 passed u/s 143(3) r.w.s. secton144C(3) of the Act.
Being aggrieved by the said order, the assessee preferred an appeal before the CIT(A). The assessee raised six grounds of appeal before the CIT(A) amongst which only ground No. 2 is relevant considering the issue relating to grounds raised before us. The CIT(A) discussed the said issue in detail from para 6.1 to 6.2.1 of the impugned order and confirmed the order of the A.O to the extent of Rs. 10,21,506/- (Rs. 20,95,596/- (-) Rs. 10,74,090/-). Having not satisfied with the order of the CIT(A), the assessee is before us.
The assessee raised three grounds of appeal amongst which the only issue emanates for our consideration is as to whether the CIT(A) justified in confirming the disallowance made by the A.O under Rule 8D(2)(iii) r.w.s. 14A of the Income-tax Act, 1961 [“the Act” for short) minus suo moto disallowance without appreciating non-recording of satisfaction by the A.O as contended by the assessee in the facts and circumstances of the case.
The ld. A.R Shri Kishor Phadke submits that on similar issue and same identical facts, this Tribunal in assessee‟s own case for A.Y. 2011-12, 2013-14 and 2014-15 deleted the disallowance made u/s 14A r.w.. rule 8D of the Rules and referred to page 12. Further, he referred to order for A.Y. 2011-12, 2013- 14 and 2014-15 from pages 21 to 25 and pages 1 to 11 and argued on similar circumstances, the Tribunal satisfied that the A.O without recording satisfaction with regard to the accounts of the assessee under section 14A(2) of the Act made the disallowance, held, which is not maintainable. Further, he referred to assessment order for A.Y. 2011-12 at pages 48 to 59 and argued that the A.O on the same lines discussed the issue in the current year against which the Birlasoft Ltd. A.Y. 2012-13 Tribunal deleted the addition as made by the A.O under Rule 8D for non- recording of the satisfaction. He vehemently argued that the orders of the Tribunal in assessee‟s own case for A.Y. 20101-11, 2011-12, 2013-14 and 2014-15 are applicable to the facts on hand and the order of the CIT(A) is liable to be quashed.
The ld. D.R Shri S.P. Walimbe submits that the A.O discussed the issue in detail wherein he considered the submissions made by the assessee and not satisfied with the working made by the assessee on its own at Rs. 10,74,090/- proceeded to work out the disallowance under rule 8D. The reason for proceeding to apply rule 8D method clearly shows that the A.O did not satisfy with the working of disallowance as laid down by the assessee. He referred to the exempt income earned by the assessee and the disallowance made by the assessee at 100% of the treasury management is not reasonable taking into account the aforesaid value of investment and the exempt income earned thereon. He drew our attention to para 6.2.1 of the impugned order and argued that the CIT(A) rightly held a part of salary of CFO and the General Manager Finance could also be apportioned towards exempt income as the decision for making investments they being higher Officials involving making the investments decisions. He vehemently argued that the A.O correctly recorded satisfaction and also the CIT(A) rightly restricted the disallowance to the extent of Rs. 10,21,500/- on account of Rule 8D(iii) of the Rules.
Heard both the parties and perused the material on record. We note that there is no dispute with regard to the average value of investment as on the first day and last day of previous year standing at Rs. 41,91,19,138/-. The A.O did not disallow any expenditure under rule 8D(2)(i) and 8D(2)(ii) of the Rules. The A.O only made the disallowance under rule 8D(2)(iii) having not satisfied
Birlasoft Ltd. A.Y. 2012-13 with the disallowance made by the assessee on its own and there is no dispute with regard to the earning of exempt income at Rs. 3,43,97,776/-. The contention of the ld. A.R is that the A.O without recording satisfaction on the disallowance made by the assessee and proceeded to apply the method under rule 8D of the Rules. We note that from para 7 of the assessment order that the A.O on finding from the computation of income the exempt as well as expenditure as disallowed by the assessee requested the assessee to explain why methodology under rule 8D is not applicable, which itself is a triggering point for raising a doubt with regard to the correctness of account of the assessee in disallowing the expenditure relatable to earning of exempt income. It is also not disputed that the assessee gave its explanation relating to the show cause of the A.O which we find reproduced by the A.O in his order form para 3 to 8, wherein we note that the assessee made investments in six mutual funds to the extent of Rs. 36,31,58,836/- as on 31-3-2012. The contention of the assessee is that the basis for its own disallowance is a cost of treasury management persons at 100% and no additional cost incurred and there cannot be any other expenditure incurred in relation to the earning of dividend income, which clearly establishes that the A.O raised a doubt with regard to the correctness of the account of the assessee, in our opinion, that the A.O proceeded to apply method under rule 8D not automatically, but not satisfied with the accounts of the assessee. In support of his opinion, the A.O referred to decision of Hon‟ble High Court of Bombay in the case of Godrej Boyce Mfg. Co. Ltd. Vs. Dy, C.I.T. in Income-tax Appeal No. 626 of 2010 decided on 12-08- 2010. Further, he held that Rule 8D provides a statutory reasonable basis for the computation of accounts and the expenditure relatable to earning of exempt income and disallowance of expenditure incurred for earning the exempt income is required to be made by applying method under rule 8D which clearly emphasise that he did not satisfy with the accounts of the assessee and Birlasoft Ltd. A.Y. 2012-13 therefore, in our opinion, it cannot be held that there was no satisfaction recorded by the A.O. In this regard, the contention sought by the ld. A.R is not acceptable.
Further, as we noted above, the assessee raised an issue of non- recording of satisfaction by the A.O before the CIT(A). We note that the CIT(A) observed that the assessee has made huge investments and it could not have been made without the intervention of top management. He held a part of salaries of CFO and General Manager Finance will also have to be apportioned towards the exempt income as they are the decision makers in making investments. Considering the same, the CIT(A) rightly held that the A.O by recording satisfaction with regard to accounts of assessee proceeded to apply methodology under rule 8D rejecting the contention of the assessee in disallowing 100% of salaries of treasury department. Seen from any angle to the orders passed by the authorities below, we are satisfied with the reasoning given by the A.O about non-satisfaction of the accounts relating to the expenditure in earning exempt income made by the assessee on its own at 100% salary of treasury department. With regard to reliance placed on by the ld. A.R relating to earlier year orders passed by this Tribunal in assessee‟s own case, we find that the principles of res judicata is not applicable to the Income- tax proceedings and every accounting year has to be tried independently basing on the facts relating to such years. Therefore, the finding of this Tribunal in A.Ys 2011-12, 2013-14 and 2014-15 is not applicable to the facts on hand. Therefore, we hold that the A.O recorded his satisfaction about the correctness of the accounts of the assessee before applying method under rule 8D. Thus, the order of the CIT(A) is justified in restricting disallowance to an extent of Rs. 10,21,506/- (Rs. 20,95,596/- (-) Rs. 10,74,090/-). Thus, grounds No. 1 to 3 raised by the assessee fail and appeal is dismissed.
In the result, appeal of the assessee is dismissed. Order pronounced in the open Court on this 08th August 2022.