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Income Tax Appellate Tribunal, DELHI BENCH ‘G’ : NEW DELHI
Before: SHRI R.K. PANDA & SHRI KULDIP SINGH
PER KULDIP SINGH, JUDICIAL MEMBER :
Appellant, M/s. Sukhmani Technologies Pvt. Ltd.
(hereinafter referred to as the ‘assessee’) by filing the present appeal sought to set aside the impugned order dated 19.11.2013 passed by the Commissioner of Income-tax (Appeals)-XXXI, New Delhi qua the assessment year 2010-11 on the grounds inter alia that:-
“That on the facts and circumstances of the case the learned ITO and the CIT(A) erred in :
Upholding the Assessment & addition of Rs. 2,10,060/- u/s 14Ainspite of the fact that the Assessment for the year had abated in terms of section 153A & no incriminating material was unearthed in the course of search & seizure operations.
2. Disallowing Rs.2,10,060/- u/s 14A of the Act.
3. Disallowing the expenditure u/s 14A without the Assessing Officer giving any finding in the assessment order regarding the amount of actual expenditure incurred by the assessee to earn tax-free income.
4. Not following the orders of the jurisdictional High Court in this matter.”
Briefly stated the facts necessary for adjudication of the issue at hand are : Assessing Officer (AO) noticed during the scrutiny proceedings that assessee company has received dividend income of Rs.70,98,442/- and claimed the same as exempt from tax. AO by invoking the provisions of section 14A of the Income- tax Act, 1961 (for short ‘the Act’) read with Rule 8D of the Income-tax Rules, 1962 (for short ‘the Rules’) made disallowance of Rs.2,10,060/-.
Assessee carried the matter by way of an appeal before the ld. CIT (A) who has confirmed the addition by dismissing the appeal. Feeling aggrieved, the assessee has come up before the Tribunal by way of filing the present appeal.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
GROUNDS NO.1, 2, 3 & 4
Ld. AR for the assessee contended that the disallowance made by the AO and confirmed by the ld. CIT (A) is not sustainable as no expenditure has been incurred by the assessee during the year under assessment because no interest bearing funds have been invested during the year under assessment and that the entire investment on which dividend income has been earned, is of last years.
Ld. DR for the Revenue, on the other hand, relied upon the orders of the lower Revenue authorities.
Undisputedly, assessee has earned dividend income of Rs.70,98,442/-. When the assessee has come up with specific pleading that no expenditure has been incurred during the year under assessment qua the investment on which dividend income has been earned, the AO was required to record dissatisfaction that working given by the assessee is not correct and only then he can proceed to invoke the provisions contained under Rule 8D of the Rules. But, in this case, AO has not recorded any satisfaction rather mechanically invoked the provisions of Rule 8D.
Hon’ble Apex Court in Godrej & Boyce Manufacturing Company Ltd. vs. DCIT – 394 ITR 449 (SC) thrashed the issue in controversy as to invoking of the provisions contained under Rule 8D of the Rules by observing as under :-
“37. We do not see how in the aforesaid fact situation a different view could have been taken for the Assessment Year 2002-2003. Sub-sections (2) and (3) of Section 14A of the Act read with Rule 8D of the Rules merely prescribe a formula for determination of expenditure incurred in relation to income which does not form part of the total income under the Act in a situation where the Assessing Officer is not satisfied with the claim of the assessee. Whether such determination is to be made on application of the formula prescribed under Rule 8D or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of Section 14A(2) and (3) read with Rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable.”
So, when the AO has failed to record his dissatisfaction as to the claim of the assessee that the entire investment on which dividend income has been earned is of preceding years and no expenditure has been incurred, he was not empowered to resort to the provisions contained u/s 14A read with Rule 8D of the Rules.
In view of what has been discussed above and following the decision rendered by Hon’ble Apex Court in Godrej & Boyce Manufacturing Company Ltd. vs. DCIT (supra), we are of the considered view that when assessee has proved to have earned the dividend income on the investment of the previous years for which no interest bearing funds have been utilized and the AO has not recorded his dissatisfaction rather invoked the provisions contained under Rule 8D mechanically, addition made on account of administrative charges @ 0.05% under Rule 8D cannot be made and as such, is not sustainable, hence ordered to be deleted.
Consequently, the appeal filed by the assessee is allowed. Order pronounced in open court on this 28th day of November, 2019.