MR. AJAY VOHRA,NEW DELHI vs. ACIT, DELHI

The brief facts of the case is that the assessee is a Sr. Advocate by profession and derived income from business or profession, income from house property, income from capital gain and income from other sources. The assessee has earned exempt income of Rs. 234213/- as dividend income in the return of income filed on 28.09.2012 of Rs. 37619840/-. During the course of assessment proceedings, assessee was asked to furnish details of expenses incurred to earn exempt income. The assessee vide letter dated 05.02.2015 was stated that no expenditure incurred by the assessee for earning exempt income. Assessee submitted details of total expenditure of Rs. 1118354/- under each of the head incurred by him and stated that none of that expenditure is in relation to earning of exempt income. The ld AO vide para No. 3.7 noted that as no disallowance has been made by the assessee, he has reason to arrive at the satisfaction that disallowance u/s 14A of the Act read with rule 8D is required to be made. Thus, he worked out Rs. 234213/- as disallowable expenditure u/s 14A of the Act applying Rule 8D, consequently, assessment order u/s 143(3) of the Act was passed on 25.03.2015.

That order was challenged by the assessee before the ld CIT (A). Ld CIT(A) confirmed the above addition for the reason that in earlier years the orders passed by the ld CIT(A) for Assessment Year 2010-11 on identical issue has been accepted by assessee. She further confirmed the addition on the merits. With respect to the satisfaction of the ld AO she held that para 3.7 of the order the ld AO has recorded the satisfaction correctly. The assessee aggrieved with the order has preferred an appeal before us. 5. The ld AR submitted that ld AO failed to record any satisfaction with respect to the explanation of the assessee that out of the total expenditure of Rs. 1118354/- no expenses has been incurred for earning the exempt income. He further submitted that in para 3.7 of the order of the ld AO, it is stated that there is no iota of evidence placed by the ld AO which Page | 2 expenditure has been incurred by the assessee for earning exempt income. Even otherwise the expenditure of Rs. 234213/- made by the ld AO under Rule 8D(2)(iii) of the Act is not based on any working. He extensively referred to his submission before ld AO and CIT (A). he also referred to the details of expenditure incurred by the assessee. He otherwise submitted that assessee has not incurred total expenditure of the sum disallowed by the ld AO and confirmed by the ld CIT (A).

The ld AR supported the order of the lower authorities.

We have carefully considered the rival contentions and perused the orders of the lower authorities. In the present case, the assessee has specifically stated that it has not incurred any expenditure to earn exempt income. The assessee further submitted before the ld AO the details of each and every expenditure out of Rs. 1118354/- which has been debited in the books of account. The nature of expenditure shown by the assessee in the income and expenditure clearly shows that the major expenditure is of donation of Rs. 801000/- and deprecation of Rs. 1,99,694/-. All other expenditure in the form of insurance, books, audit fees, subscription and telephone etc , each of them being less than Rs. 20000/- was claimed. The ld AO without pointing out any instance of expenditure incurred by the assessee with regard to books of account of the assessee, adopted the disallowance computation u/r 8D of the IT Rules. Ld AO could not show that any of the expenditure is incurred for earning exempt income. Para 3.7 of the AO is merely a bald satisfaction of general expenses which by no stretch of imagination can be said to a proper satisfaction in terms of section 14 A (2) of the Act. Further the donation expenses of Rs 801000/- is not an allowable expenses so no disallowance can be made out of it.. The depreciation of Rs. 199694/- cannot be held to be an expenditure but a claim of depreciation, hence, in view of the decision of the special bench [137 ITD 189] same cannot be considered for disallowance u/s 14A and Rule 8D. All other expenditure are for specific purposes, such as books, stationery, audit fees etc. In view of the above facts, it is apparent that claim of the assessee that he has not incurred any expenditure for earning exempt income is correct. The ld AO did not dispute this fact but applied the provisions of Rule 8D of the Income Tax Rules, 1962. In view of