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Income Tax Appellate Tribunal, MUMBAI BENCHES “J”, MUMBAI
Before: Shri C. N. PRASAD, & Shri G. MANJUNATHA
आदेश / O R D E R Per G. Manjunatha (Accountant Member) These cross appeal filed by the assessee, as well as the Revenue are directed against order of the Ld. CIT(A)-15, Mumbai, dated 10/09/2014, for Assessment Year 2010-11. Since facts are identical and issues are common, for the sake of convenience, these appeals were heard together and are disposed of by this consolidated order.
The assessee has filed following grounds of appeal:- 1.0 Ground No. 1 The Hon'ble Commissioner of Income Tax (Appeals)-1"5,Mumbai [The CIT (A)] has erred in law and on facts and in circumstances of the case in upholding addition of Rs.29,66,742 in respect of share application money advanced to Associate Enterprise ('AE'). 2.0 Ground No. 2 The Hon'ble CIT(A) has erred in law and on facts and in circumstances of the case in upholding the addition of interest of Rs.9,53,074 on delay in realization of export receivables from AEs. 3.0 Ground No.3 The Hon'ble CIT(A) has erred in law and facts in upholding the additional disallowance of Rs.74,44,433; one-half per-cent of the average value of investments under section 14A of the Income Tax Act, 1961 {'the Act'} by applying Rule 8D of the Income tax Rules, 1962 ('the Rules). 4.0 Grou nd No.4 The Hon'ble CIT (A) has erred in law and on facts and in circumstances of the case in upholding the additional disallowance of Rs.74,44,433; one- half per-cent of the average value of investments under section 14A of the Act in computing the Book Profit under section 115JB of the Act.
3. The Revenue has raised following grounds of appeal:-
1. "Whether on the facts and circumstances of the case and in law,the Ld.CIT(A) has erred in directiong to consider net interest debit to Profit & Loss Account for calculation of disallowance u/s14Ar. w. Rule 8D of the IT Rules 1962, without appreciating the fact that there is no Such concept of 3 & 7058/Mum/2014 netting of interest in the provisions of section 14A r.w.Rule 8D of IT Rules 1962" 2. "Whether on the facts and circumstances of the case and in law, the Ld CIT(A) has not appreciated the fact that the assessee has not established nexus of interest expenditure with any particular income or receipt and hence, the provisions of Rule 8D(2)(ii) are not attached" 4. The brief, facts of the case are that the assessee is a privileged sightholder of diamond trading company engaged in the business of trading of diamonds. The assessee has filed its return of income for AY. 2010-11 on 09/10/2010 declaring total income for Rs.38,21,31,102/- as per normal provisions and Rs.79,88,52,940/- u/s 115JB of the Act. The case was selected for scrutiny and during the course of assessment proceedings, a reference was made to the Transfer Pricing Officer (TPO) for determining Arm’s Length Price (ALP) in relation to international transactions with Associated Enterprises (AE). The TPO, vide order dated 09/05/2013 u/s-92CA(3) of the Act called upon the assessee to justify interest received on share application money given to its AE along with interest on export receivables. In response, the assessee submitted that it has received interest on share application money on the basis of LIBOR plus 200 BPS and such rate is based on the recommendations of the RBI vide circular no 7 of 2009-10 dated 1st July 2009, wherein it is mentioned that trade credit could be availed at maximum cost of 6 months LIBOR plus 200 BPS. It was submitted that interest charged by the assessee on share application money to AEs was at par with the interest rate on foreign currency loan availed by the assessee.
Therefore, its transactions with AE is at ALP. Similarly, the TPO called upon the assessee to explain why interest on export receivables shall not be charged to response, the assessee submitted that credit period in case of export and local sales differs from customers to customers on the terms and conditions of which the goods are sold. The credit period is also depends upon the credibility of the customers.
Commercial rational behind non-charging of interest is industrial practice considered for determining ALP.
The TPO after considering the relevant submissions held that LIBOR plus mark up approach adopted by the assessee to charge interest on share application money to its AEs is not acceptable, because adding mark up to the LIBOR covers the risk reward only when the transaction is made in forex. When money is advanced to the AE by buying hard currencies from selling INR, there is additional risk of exchange rate difference. The assessee has not covered itself against currency risk, entity risk, country risk and administrative cost in charging LIBOR plus 200 BPS to the AE. A mark up of 300 BPS is therefore applied to the rate of interest charged by the assessee. Accordingly workout interest receivables on share application money and determined total interest of Rs.81,58,533/- and also after reducing interest received by the assessee of Rs.51,91,791/-, the balance amount of Rs.29,66,742/- has been suggested to make adjustment towards interest received on share application money.
Similarly, in respect of interest on export receivables, after analyzing the facts, the AO observed that the assessee has allowed undue benefit to its AE by extending credit period which is more than credit period allowed to non-AEs, therefore, taking note of interest on packing credit to foreign currency loan and also the rate of interest involved in packing credit exposure, determined interest receivables of Rs. 9,53,074/- and suggested adjustment under transfer pricing regulations.
The AO, on the basis of TPO’s order completed assessment u/s 144C(3) r.w.s.
143(3) of the Act on 24/01/2014 and determined total income at Rs.39,04,97,800/- where he had made additions towards transfer pricing adjustment as recommended by the TPO in its order dated 09/05/2013 towards interest on share application money to AEs and also interest on export receivables from AEs. In addition, the AO has made additions of Rs.44,25,829/-u/s 14A by invoking provisions of Rule-8D towards expenses incurred in relation to exempt income, on the ground that although the assessee has earned huge dividend income but failed to determine correct amount of disallowances in respect of expenses incurred in relation to exempt income, therefore by applying prescribed formula provided under Rule-8D, determined disallowance of Rs.94,27,894/- which includes amount of direct expenditure relating to exempt income of Rs.3,07,453/- proportionate share of interest attributable to the exempt income as
per Rule 8D-2(ii) of Rs.16,76,007/- and an amount equal to one and half percent at the average value of investment which shall not part form of total income for Rs.74,44,433/-. After reducing suo-moto disallowance made by the assessee of Rs. 50,02,065/- , he made further addition of Rs.44,25,829/-. pricing adjustment on account of interest charged on share application money given to its AE along with adjustment made towards interest receivables on export receivables. The assessee has also challenged the additions made by the AO towards disallowance of expenses incurred in relation to exempt income. The ld CIT(A) after considering relevant submissions of the assessee, partly allowed appeal filed by the assessee, where he has confirmed additions made by the AO towards transfer pricing adjustment on account of interest charged onn share application money and also transfer pricing adjustment in respect of outstanding export receivables but, allowed partial relief in respect of additions made towards disallowance of expenditure incurred in relation to exempt income u/s 14A by directing the AO to consider only net interest expenditure for the purpose of disallowance under Rule-8D-2(ii) of the Rules, 1962.
Aggrieved by the order of the Ld. CIT((A), the assessee as well as the Revenue is in appeal before us.
The first issue that came up for our consideration from ground no.1 of the assessee’s appeal is transfer pricing adjustment on account of interest charged on share application money forwarded to AE for Rs.28,66,742/-.
The facts with regard to impugned dispute are that the assessee has charged interest at 6 months LABOR plus 200 BPS as interest on share application money overdraft facility from local bank at Botswana at interest rate of 2.5%. All these evidences are part of assessment proceedings. The TPO held that neither PULA nor INR are basket currency of LIBOR, hence it is not applicable to the assessee. The TPO further held that the LIBOR was not acceptable because the Mark-up to the LIBOR covers the risk reward only when the transaction is made in forex. Since, the assessee had not considered itself against currency risk, entity risk, country risk and administrative cost in charging LIBOR plus 200 BPS, he had made adjustment of additional 500 BPS @ 5.5%. The Ld. CIT(A) has upheld the adjustment made by the TPO/AO.
11. The Ld. AR for the assessee submitted that TPO/AO was erred in working out interest on share application money forwarded to AE by taking LIBOR plus 500 BPS without appreciating the fact that the assessee has given share application money to its AE out of own funds and also interest charged by the assessee @ 3.5% is comparable with the rate on which borrowing is made, hence, no adjustment is required to be made. The AR further submitted that interest rate should be market determined interest rate applicable to the currency concerned in which the loan has to be repaid. Interest rate should not be compared on the basis of interest payable on the currency or legal tender of the place or country or resident of either party. Since, share application money was forwarded in US $, LIBOR rate should be considered as bench mark. The Ld. AR further submitted that when the TPO himself stated currency of erred in made adjustment of 500 BPS upon the interest charged by the assessee without any basis. The Ld. AR further submitted that the Department has accepted in earlier year when the assessee has charged LIBOR plus 300 BPS without any disturbance, therefore, without there being any change in facts making further adjustment of 500 BPS is incorrect and also opposite to the principle of rule of consistency. In this regard, the assessee has relied upon the decision of Hon’ble Delhi High Court in the case of CIT vs Cotton Naturals (I) (P.) Ltd. [2015] 276 CTR 445 (Del.) and also the decision of Hon’ble Bombay High Court in the case of CIT vs Tech Mahindra Ltd. (2015) 229 taxman 298 (Bom.). The assessee has also relied upon the decision of Hon’ble Supreme Court in the case of Bharat Sanchar Nigam Ltd. vs UOI (2006) 282 ITR 273 (SC).
The Ld. DR on the other hand, submitted that although the assessee has bench marked interest charged on share application money forwarded to AE by taking LIBOR plus 200 BPS, but failed to offer any explanation why it has deviated from earlier year rate of LIBOR plus 300 BPS charged on share application money given to AE. Though, the assessee has advocating principle of consistency, but assessee itself did not follow consistency in charging interest on share application money which is evident from the fact that the assessee has charged LIBOR plus 300 BPS in earlier year, whereas changed rate of interest to LIBOR plus 200 BPS for the year under consideration without there being any change in facts. Therefore, there is no error in hence the additions made by the AO should be sustained.
We have heard both parties, perused the material available on record and gone through the orders of authorities below. There is no dispute with regard to the fact that assessee has charged interest on share application money forwarded to AE and such interest has been charged by applying LIBOR plus 200 BPS and later converted into Indian Rupee to determined interest receivable from AE. The assessee has justified charging LIBOR plus 200 BPS on the ground that interest rate should be market determined applicable to the currency concerned in which loan has to be repaid.
Interest rate should not be computed on the basis of interest payable or the currency or legal tender of the place or country or resident of either party. Accordingly, it has applied LIBOR plus 200 BPS considering currency risk, entity risk, country risk and administrative cost. The AO has determined interest receivable on share application money forwarded to AE by applying LIBOR plus 500 BPS @ 5.5% on the ground that assessee has not covered itself against currency risk, entity risk, country risk and administrative cost in charging interest on LIBOR plus 200 BPS to the AE. We find that the assessee has charged interest by applying LIBOR plus 300 BPS for immediately preceding year and such rate has been accepted by the Department without any further adjustment. The assessee has changed rate of interest to LIBOR plus 200 BPS without there being change in circumstances. Although, the assessee advanced rule of consistency, but yet it has failed to explain why rate of interest has assessee has failed to make out a sufficient reason for changing rate of interest applying on share application money forwarded to its AE. Therefore, considering the assessee’s own calculation of LIBOR plus 300 BPS for AY 2011-12 and 2013-14 and such rate has been accepted by the Department, we are of the considered view that assessee ought to have charged LIBOR plus 300 BPS on share application money forwarded to its AE. Therefore, we direct the AO/TPO to recalculate interest receivables on share application money forwarded to AE by applying LIBOR plus 300 BPS.
The next issue that came up for our consideration from ground no. 2 is transfer pricing adjustment on outstanding export receivables of Rs.9,53,074/-. The assessee, during the year had outstanding receivables from both AE and non-AE. The assessee has not charged interest on outstanding receivables to both AE and non-AE customers. To support its arguments, the assessee has furnished a letter from Gem & Jewellery council to establish that non charging of interest on receivables was an industry practice. The TPO asked the assessee to provide weighted average period for receivables form both AE and Non AE. The assessee submitted that weighted average days for receivable from Non AE were 85 days and that from AE was 39 days. The TPO has made an adjustment on all export invoice where export realization was beyond the period of 85 days by applying interest @ 4.5% being 200 BPS mark up on the interest taken on packing credit as availed on 2.5% by the assessee. The complete uniformity between credit period to AE and Non AE and hence transaction was not at arm’s length. The Ld. CIT(A) also held that weighted average as computed by the assessee for establishing 39 day credit period to AE included the advances received by it and hence rejected the comparison.
The Ld. AR for the assessee submitted that where there is a complete uniformity of act of the assessee in not charging interest from both AE and Non-AE debtors for delay in realization of export proceeds, the AO was not justified in making addition of notional interest to assessee’s ALP on aforesaid ground in course of transfer pricing adjustments. The Ld. AR further submitted that the AO has taken one or two solitary instance of delay over and above normal period allowed to non-AEs to compare the period of delay in relation to export receivables without considering the submissions made by the assessee that weighted average period of delay in case of AE is less than the delay in relation to debtors from Non-AEs. The Ld. AR further submitted that the weighted average delay in realization of export cannot be an appropriate bench mark to carry transfer pricing adjustment as many transaction with non-AE shall have a longer period than AE. The TPO himself observed that in the period of 85 days, only 62.09% of total exports to Non-AE were realised, while 88.16% of sales to AE were realised during same period, therefore, comparison of period by taking one or two instance to bench mark receivables is incorrect. facts to effect that the assessee has allowed undue benefit by extending credit period to AEs over and above the normal credit period allowed to Non AE in case of export receivables, therefore, the AO/TPO was right in bench marking export receivables by comparing the period of credit allowed to Non-AEs and hence there is no reason to deviate from the findings recorded by the TPO in order to give benefit to the assessee.
We have heard both parties, perused material available on record and gone through the orders of authorities below. There is no dispute with regard to the fact that the assessee has not charged any interest on receivables from both AE as well as Non-AE. Further, where there is complete uniformity in act of assessee in not charging interest from both AE and Non-AE debtors for delay in relation of export proceeds, therefore, the AO is not justified in making addition of notional interest to the assessee ALP on aforesaid ground in course of transfer pricing adjustment. As weighted average realization in case of AE was lesser than Non-AE, no TP adjustment should be made. This finding is fortified by the decision of the Hon’ble Bombay High Court in the case of CIT vs vs Indo American Jewellery Ltd. [2014] 223 taxman 8 (Bom.), where it was held that there was complete uniformity in act of assessee in not charging interest from both AE and Non-AE debtors for delay in realization of export proceeds, no adjustment to ALP in course of transfer pricing proceedings. Therefore, we are of the considered view that the AO/TPO was erred in making addition towards the additions made towards interest on export receivables.
The next issue that came up for our consideration from ground no.3 is disallowance of expenditure incurred in relation to exempt income. The facts with regard to the impugned dispute are that during the year under consideration, the assessee has earned exempt income being dividend of Rs.3,62,07,763/-, which was claimed exempt u/s 10(34) of the Act. The assessee has also made Suo-moto disallowance of Rs.50,02,065/- towards expenditure incurred in relation to exempt income. The AO has determined disallowances contemplated u/s 14A by applying the principles provided under Rule-8D(2) and determined total disallowance of Rs.94,27,894/- which includes direct expenditure attributable to earning exempt income of Rs.3,07,453/- proportionate interest attributable to the exempt income as
per the formula prescribed under Rule-8D(2)(ii) at Rs.16,76,007/- and amount of Rs.74,44,433/- in respect of other expenses under Rule-8D(2)(iii) of the Rules.
Further, after reducing suo-moto disallowance already made by the assessee, he made further additions of Rs.44,25,829/-. On appeal before the Ld. CIT(A), the Ld. CIT(A) allowed partial relief in respect of disallowance of interest expenditure and direct the AO to consider only net interest expenditure for the purpose of disallowances. Aggrieved by the Ld. CIT(A)’s finding, the assessee as well as Revenue is in appeal before us.
14 & 7058/Mum/2014 19. The Ld. AR for the assessee, at the time of hearing, submitted that this issue is squarely covered in favour of the assessee by the decision of ITAT, Mumbai Bench, in assessee’s own case for AY 2008-09 and 2009-10, where it was held that unless the AO recorded satisfaction as required u/s 14A(2), having regard to the books of accounts of the assessee that suo-moto disallowance made by the assessee is not correct, then the AO cannot apply the procedure provided under Rule-8D(2) to compute disallowances of expenditure in relation to exempt income u/s 14A of the Act.
The Ld. AR submitted that this proportion is further supported from the decision of the Hon’ble Bombay High Court in the Case of Godrej and Boyce Mfg. Co. Ltd. vs DCIT (2010) 328 ITR 81(Bom.)(HC) and also from the decision of Hon’ble Supreme Court in the case of Maxoff Investment Ltd. vs CIT (2018) 402 ITR 640(SC) where it was held that in those cases, where the AO has not accepted suo-moto disallowances computed by the assessee, then the AO is required to record his satisfaction having regard to the books of accounts of the assessee that disallowance computed by the assessee is not correct.
The Ld. DR on the other hand, strongly supporting orders of the AO/TPO submitted that the AO has rightly applied the prescribed procedure provided under Rule-8D to compute disallowance of expenditure incurred in relation to exempt income u/s 14A of the Act, which is mandatory in nature from AY 2009-10 onwards and hence, there is no merit in the argument of assessee, accordingly, the additions made by the AO should be upheld. through the orders of authorities below. Both the parties never disputed applicability of provision of section 14A r.w.r.8D(2). In fact, the assessee has computed suo-moto disallowance ofRs.50, 02,065/- in respect of expenditure incurred in relation to exempt income. The AO rejected suo-moto disallowance computed by the assessee and invoked Rule-8D(2) to determine disallowance of expenses. The assessee challenged the action of the AO in light of provisions of sub-section (2) of section 14A to argue that there is no clear cut satisfaction from the AO before invoking provisions of Rules- 8D(2) which is mandatorily required to be recorded before computing disallowance by applying prescribed procedure under Rules-8D(2). We find that an identical issue has been considered by the co-ordinate Bench in assessee’s own case for AY 2008-09 and 2009-10, where under identical facts and circumstances, the Tribunal deleted additions made by the AO towards further disallowances over and above suo-moto disallowances made by the assessee towards expenditure incurred in relation to exempt income on the ground that before invoking provisions of rule-8D, the AO required to record satisfaction having regard to the books of accounts of the assessee that suo-moto disallowance computed by the assessee is incorrect. The relevant findings of the Tribunal are as under:-
We have heard the rival contentions and perused the orders of the authorities below and the case law relied on. The Assessing Officer while completing the assessment noticed that assessee has received dividend income in both these assessment years and also suo motu disallowed expenditure against the exempt income. The Assessing Officer required the assessee to furnish details of dividend income 16 & 7058/Mum/2014 earned and expenses incurred for this dividend income. The assessee- company was also asked as to why interest expenditure should not be disallowed in respect of expenditure incurred too on exempt income applying Rule 8D. Assessee furnished its explanation stating that during the year and earlier years, assessee-company had made investment in shares and mutual funds out of its own-surplus funds and interest free funds. The dividend income on such shares and mutual funds is directly credited to the bank account of the company, therefore, it was contended that no specific expenditure has been incurred to earn dividend income. It was further submitted that the assessee-company considered the direct and indirect expenses as identified and apportioned by the management and disallowed u/s.l4A of the Act in the computation of income. It was further contended by the assessee that the investments are made out of accumulated funds and a detailed working has been submitted showing that assessee- company is having ample funds to make investment in shares and mutual funds from its own funds and reserves and surplus and no borrowed funds have been utilized for investment. It was contended by the assessee-company that the company has invested Rs.186.71 crores income from which it is exempt from tax against own funds of Rs.584.41 crores. Therefore, by no stretch of imagination it can be contended that company has utilized part of the borrowed funds for the purpose of making .investments.
12. The assessee further contended that it has obtained the entire interest bearing funds in the form of packing credit facilities (in Indian rupees), post shipment (PSC/PSCFC) credit facilities (in Indian PCFC/EBRD/foreign currency loans. The assessee contended that the bank provides these credit facilities for export and import business and used for a particular export and import. The bank does not provide fund for making investment in shares etc. As such the amount borrowed from the banks cannot be utilized by the assessee for any other purposes. Since, there is end use restriction from the bank, it was contended that the assessee-company has utilized whole interest bearing fund of Rs. 187.40 crores towards business investment for business purposes not for investment in shares. Thus contended that assessee-company has not borrowed any money for investment in shares of other company for earning dividend income. 13, Assessee further contended that since it had incurred certain DEMAT charges/expenses, those expenses may directly attributable to exempt income. Thus, the company has disallowed Rs. 10,45,5677- and Rs.55,62,9707- u/s.!4A of the Act in the computation of income for the assessment year 2008-09 and 2009-10 respectively, and therefore, the disallowance may be restricted to this count. However, the Assessing Officer not appreciating the submission of the assessee
invoking the provisions of Rule 8D disallowed Rs. 1,76,10,0697- and Rs.2,76,59,8247-. On a perusal of the assessment order, we find that the Assessing Officer has simply stated that since assessee has not disclosed any interest expenses for earning dividend income in its return of income, he is satisfied that the claim of the assessee with regard to the expenses incurred for earning dividend income is incorrect, therefore, the provisions of Section 14A read with Rule 8D are invoked. On a perusal of the assessment order, we find that the so called satisfaction recorded by the Assessing Officer having regard to the accounts and the suo motu disallowance made by the assessee is no recording of satisfaction at all. The Assessing Officer has not given any reason as to why the working of the assessee regarding suo motu disallowance is wrong or insufficient to meet the expenses attributable for earning the dividend income. The only reason given by the Assessing Officer is that since assessee has not disallowed interest he is not satisfied with the correctness of the claim which cannot be sustainable at all. Hon'ble Delhi High Court in the case of CIT vs. I.P. Support Services India (P.) Ltd. (378 ITR 420), considered the effect of non recording of satisfaction with a provision of Section 14A and it was held that while rejecting the claim of the assessee with regard to the expenditure or no expenditure as the case may be in relation to the exempt income he has to give cogent reasons as to why voluntary disallowance made by the assessee was unreasonable and unsatisfactory. Hon'ble Delhi High Court observed
“ Having heard the learned counsel for the parties, the court finds That the a Assessing Officer has indeed proceeded on the erroneous premise that the invocation of section 14A is automatic and comes into operation as soon as the dividend income is claimed exempt. In Maxopp Investment Ltd. (supra) this court held (page 290 of 34 7 ITR) "30. Sub-section (2) of section 14A cf the said Act provides the manner in which the Assessing Officer is to determine the amount of expenditure incurred in relation to income which does not form part of the total income. However, if we examine the provision carefully, we would find that the Assessing Officer is required to determine the amount of such expenditure only if the Assessing Officer, having regard to the accounts of the assessee,. is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under the said Act. In other words, the requirement of the Assessing Officer embarking upon a determination of the amount of expenditure incurred in relation to exempt income would be triggered only if the Assessing Officer returns a finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Therefore, the condition precedent for the Assessing Officer entering upon a determination of the amount of the expenditure incurred in relation to exempt income is that the Assessing Officer must record that he is not satisfied with the correctness of the claim of the asses- see in respect of such expenditure. Sub-section (3) is nothing but an offshoot of subsection (2) of section 14A. Sub-section (3) applies to cases where the assessee claims that no expenditure has been incurred in relation to income which does not form part of the total income under the said Act. In other words, sub-section (2) deals with cases where the assessee specifies a positive amount of expenditure in relation to income which does not form part of the total income under the said Act and sub-section (3) applies to cases where the assessee asserts that no expenditure had been incurred in relation to exempt income. In both cases, the Assessing Officer, if satisfied with the correctness of the claim of the assessee in respect of such expenditure or no expenditure, as the case may be, cannot embark upon a determination of the amount of expenditure in accordance with any prescribed method, as mentioned in sub-section (2) of section 14A of the said Act. It is only if the Assessing Officer is not satisfied with the correctness of the claim of the assessee, in both cases, that the Assessing Officer gets jurisdiction to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the said Act in accordance with the prescribed method. The prescribed method being the method stipulated in rule 8D of the said Rules. While rejecting the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, in relation to exempt income, the Assessing Officer would have to indicate cogent reasons for the same," (emphasis' supplied) 9. In CIT vs Taikisha Engineering India Ltd, [20151 370 1TR 338 (Delhi), on similar circumstances, court disapproved of an Assessing Officer invoking section 14A read with rule 8D(2) of the Rules without recording his satisfaction and noted that the recording of satisfaction as to why "the voluntary disallowance made by the assessee was unreasonable and unsatisfactory" is a mandatory requirement of the law. ‘ 14. In this case, also we find that the Assessing Officer has not given any cogent reasons to the correctness of the claim of the assessee and there was no cogent reason as to why the voluntary disallowance made by the assessee was unreasonable and unsatisfactory. In the absence of any such reason for rejecting the claim, it cannot be said that Assessing Officer has recorded his satisfaction regarding the claim of the assessee. In these circumstances, we hold that the Assessing Officer has wrongly invoked the provisions of Rule 8D r.w.s. 14A of the Act. Thus, we direct the Assessing Officer to accept the working of suo motu disallowance made by the Assessee as the expenses attributable for earning dividend income and no further disallowance"-u/s.14A is 19 & 7058/Mum/2014 warranted in the facts and circumstances of the assessee's case. Thus, we direct the Assessing Officer to delete the disallowance made u/s.14A of the Act. ' 22. In this view of the matter and consistent with view taken by the Co-ordinate Bench, we direct the AO to delete further disallowance made towards expenditure incurred in relation to exempt income u/s 14A of the Act.
The next issue that came up for our consideration from ground no.4 is computation of book profit u/s 115 JB of the Act, by making adjustment towards disallowance of expenditure incurred in relation to exempt income.
The Ld. AR for the assessee, at the time of hearing submitted that this issue is covered in favour of the assessee by the decision of the ITAT, Delhi Special Bench in the case of ACIT vs Vireet Investment P. Ltd. [2017] 82 taxmann.com 415 (Del.
Trib.)(SB), where the Tribunal held that computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without restoring to computation as contemplated under section 14A r.w.r. 8D.
Having heard both sides and considered material available on record, we find that issue is also squarely covered in favour of the assessee by the decision of the ITAT Delhi Special Bench in the case of ACIT vs Vireet Investment P. Ltd. (supra), where the Tribunal categorically held that provision of clause (f) of Explanation 1 to section 115JB(2) is to be made without restoring to computation as contemplated under section 14A r.w.r. 8D. Therefore, considering the facts and circumstances of the case and also by following the decision of the coordinate Bench of Delhi ITAT, Special make adjustment towards disallowance as computed u/s 14A of the Act read with Rule-8D while computing book profits.
In the result, appeal filed by the assessee is partly allowed and appeal filed by the Revenue is dismissed.
Order pronounced in the open Court on 31/05/2019.
Sd/- Sd/- (C.N. Prasad) (G. Manjunatha) �या�यक सद�य /JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER मुंबई Mumbai; �दनांक Dated : 31/05/2019 f{x~{tÜ? f{x~{tÜ? P.S f{x~{tÜ? f{x~{tÜ? P.S //./././.�न.स. P.S P.S आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant (Respective assessee) 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT, Mumbai. 4. आयकर आयु�त / CIT(A)- , Mumbai, 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,