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Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
Before: SHRI S.S. GODARA & DR. DIPAK P. RIPOTE
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “B”, PUNE BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER AND DR. DIPAK P. RIPOTE, ACCOUNTANT MEMBER ITA No.1247/PUN/2018 निर्धारण वषा / Assessment Year : 2015-16 M/s. Ferrocare International Vs. ITO, Ward S.No.32/3/8, Yewalewadi Road, 14(3), Pune Kondhwa Budruk, Pune – 411048 PAN: AAAFF5100C Appellant Respondent
Assessee by Shri Nikhil Pathak Revenue by Shri M.G. Jasanani Date of hearing 04-07-2022 Date of pronouncement 12-07-2022 आदेश / ORDER PER S.S. GODARA, JM : This assessee‟s appeal for AY 2015-16 arises against the CIT(A)-7, Pune‟s order dated 22-05-2018 passed in case No. PN/CIT(A)-7/Wd-14(3)/10186/2017-18 involving proceedings under Section 143(3) of the Income Tax Act, 1961, in short „the Act‟.
Heard both the parties. Case file perused.
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The assessee‟s sole substantive grievance raised in the instant appeal challenges correctness of both the lower authorities‟ action invoking section 14A rule 8D(2)(iii) administrative expenses disallowance of Rs.4,86,419/- in course of assessment dated 14.12.2017 as upheld in the CIT(A)‟s order as follows: “5.3 I have carefully considered the facts of the case and law apparent from records. The assessee has e-filed return of income on 12/10/2015 declaring total income of Rs.1,29,98,460/-. The assessee has declared exempt dividend of Rs.36,34,978/- and suo- moto disallowance of Rs.36,000/- made u/s. 14A. The AO sought explanation of the assessee for invocation of Rule 8D. The AO observed that assessee has been making investments for earning exempt income and rejected claim of the assessee and invoked Rule 8D and computed further disallowance at Rs.4,50,419/-. 5.4 During the appellate proceedings the appellant submitted that the appellant has already disallowed Rs.36,000/- towards expenditure incurred for the purpose of earning(collecting the tax free income) through ECS having 25 such entries. 5.5 Ostensibly, the appellant has made suo-moto disallowance of Rs. 36,000/- u/s. 14A and has earned exempt dividend of Rs.36,34,978/-. The basis of disallowance of Rs.36,000/- has not been mentioned by the AO and the appellant has also not mentioned the basis of disallowance u/s. 14A during the appellate proceedings. The appellant has not disclosed the basis of allocation of expenditure for exempt income. This shows that there is no segregation of accounts instead there is estimation of expenditure. The appellant has not mentioned that how much expenditure from which heads are being disallowed which has been accounted in books of account. During the appellate proceedings no supporting evidence furnished in support of its contentions. Accordingly, adverse inference has to be drawn against appellant in terms of section 114 of the Indian Evidence Act 1872 for non submission of necessary evidences. The appellant failed to demonstrate that disallowance of Rs. 36,000/- is in commensurate with provisions of section 14A(1) and denotes actual expenditure
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directly incurred to earn exempt income. Under these circumstances, sufficiency/deficiency/excessive of disallowance of Rs. 36,000/- cannot be determined without supporting evidences. After introduction of Rule - 8D the AO and assessee has no choice except to compute disallowance under Rule 8D instead of subjective disallowance. 5.6 The appellant was required to disallow actual expenditure incurred to earn exempt income from expenditures booked in books of account u/s. 14A(1). The primary onus is on the appellant to prove that suo-moto disallowance made u/s. 14A(1) is in commensurate with expenditures booked in books of account with reference to earning of exempt income. It is not for the AO to look into each and every item of the expenditure in books of account to find out expenditure related to exempt income. Having furnished the details of expenditure then only it is the duty of the AO to draw satisfaction that disallowance under section 14A(1) is sufficient and no need to proceed further u/s. 14A(2) to invoke Rule 8D. On being dissatisfied with the disallowance u/s. 14A(1) the AO will get himself satisfied to proceed u/s. 14A(2). Therefore, the question of satisfaction of the AO u/s. 14A(2) will arise only when the appellant discharges burden cost u/s.14A(1). The appellant has failed to discharge primary onus of the basis of computation of Rs. 36,000/-. 5.6.1 The Punjab and Haryana High Court in case of Punjab Tractors Ltd Vs. CIT reported in 393 ITR 223 wherein it has been held that: "IT : Where assessee had earned tax free dividend income, Assessing Officer was justified in presuming that assessee had incurred expenditure towards administrative activities necessary to earn said income and, thus, he was entitled to resort to rule 8D." It is to be mentioned that Rule 8D(2)(iii) prescribes expenditure of 0.5% of investments and not with reference to exempt income. The appellant has disallowed only expenditure amounting to 1% of the exempt income. The provisions of section 80HHC(3)(b) also recognizes expenditure to tune of 10% to earn incidental income. Therefore, the decision of the Punjab Tractors Ltd. (Supra) is squarely applicable to the facts of the appellant as for as the administrative expenditure and apportionment of other expenditure to earn dividend is concerned.
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5.6.2 The Delhi High Court in case of Indiabulls Financial Services Ltd. Vs. DCIT reported in 76 taxmann.com 268 wherein it has been held that: "IT: Where Assessing Officer after carrying out elaborate analysis and following steps enacted in statute, had determined amount of expenditure incurred for earning tax exempt income, merely because he did not expressly record his dissatisfaction about assessee's calculation, his conclusion could not be rejected. " The High Court is further observed that: "7. Undoubtedly, the language of Section 14A presupposes that the AO has to adduce some reasons if he is not satisfied with the amount offered by way of disallowance by the assessee. At the same time Section 14A (2) as indeed Rule 8D(i) leave the AO equally with no choice in the matter inasmuch as the statute in both these provisions mandates that the particular methodology enacted should be followed. In other words, the AO is under a mandate to apply the formulae as it were under Rule 8D because of Section 14A(2). If in a given case, therefore, the AO is confronted with a figure which, prima facie, is not in accord with what should approximately be the figure on a fair working out of the provisions, he is but bound to reject it. In such circumstances the AO ordinarily would express his opinion by rejecting the disallowance offered and then proceed to work out the methodology enacted". 5.6.3 In view of the decision of the Indiabulls Financial Services Ltd(Supra) the AO was bound to compute disallowance under Rule 8D as AO was not satisfied with meager expenditure,, theory of the appellant that too without any supporting evidence. Further the Rule 8D has been introduced to eliminate subjective disallowance u/s. 14A. After introduction of the Rule 8D the subjective disallowance as contended by the assessee/appellant has to be rejected. 5.7 The appellant relied on the judicial pronouncements mentioned in para 5.2 of the order. The peculiar facts of the case of the appellant is distinguishable as mentioned above. Therefore, the appellant might be right in pointing correct procedure for invocation of Rule 8D. In case of appellant the primary burden cost on appellant has not been discharged and not demonstrated through Audit Report in Form No.
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3CD by the auditor that how the auditor considers the expenditure of Rs. 36,000/- as reasonable. 5.8 In view of the above, action of the AO in invoking Rule 8D is upheld and further disallowance of Rs.4,50,419/- u/s. 14A is also upheld. Accordingly, ground No. 1 of the appeal is dismissed.”
Learned counsel is fair enough in not disputing the impugned disallowance as applicable in the hands of instant case in principle. His solitary argument raised during the course of hearing is that both the learned lower authorities have considered assessee‟s entire investments than only those yielding actual exempt income in the relevant previous year for the purpose of computing its administrative expenditure in issue. He quotes ACB India Ltd. vs. ACIT (2014) 374 ITR 108 (Del) and Vinit Investments (2017) 165 ITD 27 (Del)(SB) deciding the very issue in assessee‟s favour and against the department in very terms. Faced with this situation, we reject the Revenue‟s vehement arguments to this limited extent and direct the learned Assessing Officer to re-compute the impugned disallowance of administrative expenses after taking into consideration only the exempt income yielding investments as per law in consequential proceedings. Ordered accordingly. No other ground or argument has been raised before us.
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This assessee‟s appeal is partly allowed in above terms.
Order pronounced in the Open Court on 12th July, 2022.
Sd/- Sd/- (DIPAK P. RIPOTE) (S.S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER पुणे Pune; ददिधांक Dated : 12th July, 2022 GCVSR आदेश की प्रतिलिपि अग्रेपिि/Copy of the Order is forwarded to: अपीऱधर्थी / The Appellant; 1. प्रत्यर्थी / The Respondent; 2. 3. The CIT(A)-7, Pune 4. The Pr.CIT-6, Pune विभागीय प्रविविवि, आयकर अपीलीय अविकरण, पुणे “B” / 5. DR „B‟, ITAT, Pune 6. गार्ड फाईल / Guard file आदेशानुसार/ BY ORDER,
// True Copy // Senior Private Secretary आयकर अपीलीय अविकरण ,पुणे / ITAT, Pune
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Date 1. Draft dictated on 05-07-2022 Sr.PS 2. Draft placed before author 08-07-2022 Sr.PS 3. Draft proposed & placed before the JM second member 4. Draft discussed/approved by Second JM Member. 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order.