WARTSILA INDIA P.LTD,NAVI MUMBAI vs. DCIT 15(3)(1), MUMBAI

The present appeal has been preferred by the assessee against the order dated 01.11.2017 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2013-14.

The issue raised in ground No.1 is against the order of Ld. CIT(A) confirming the action of the DCIT (15)(3)(1), Mumbai in invoking the provisions of section 14A read with rule 8D in making addition of Rs.45,86,331/- and prayed before the Bench that the DCIT, Mumbai be directed to restrict the disallowance at Rs.6,91,341/- as calculated by the assessee.

The facts in brief are that the AO during the course of assessment proceedings observed that assessee has shown exempt income by way of dividend of Rs.3,59,21,689/- and has made suo motto disallowance under section 14A read with rule 8D at Rs.6,91,341/-. The AO vide order sheet dated 14.09.2016 issued a show cause notice to the assessee as to why the disallowance should not be worked out by applying provisions of section 14A read with rule 8D which was replied by the assessee by submitting that it has already disallowed Rs.6,91,341/- in the computation of income as has been calculated by the tax auditor in the tax audit report. However, the AO did not agree to the contentions of the assessee and applied the provisions of section 14A read with rule 8D by relying on the decision of Hon’ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. Vs. DCIT 234 ITR Bombay (1) (2010) and also the decision of Special Bench of ITAT Delhi in the case of Chem Investments vs. ITO and finally computed the disallowance at Rs.52,77,672/- comprising Rs.90,960/- under rule 8D2(ii) and Rs.51,86,712/- under rule 8D2(iii) being 0.5% of the average investments and after making allowance of suo- motto disallowance of Rs.6,91,641/-, net addition of Rs.45,86,331/- was made to the income of the assessee.

In the appellate proceedings, the Ld. CIT(A) dismissed the appeal of the assessee by holding that the assessee has undoubtedly got mixed funds and therefore provisions of section 14A of the Act read with rule 8D were applicable and thus upheld the invocation of provisions of section 14A read with rule 8D by upholding the order of AO.

The Ld. A.R. vehemently submitted before us that AO has not recorded any objective satisfaction while rejecting the disallowance of Rs.6,91,341/- as made by the assessee and straightway applied provisions of section 14A read with rule 8D which is against the provisions of the Act. The Ld. A.R. argued that it is mandatory on the part of AO to record objective satisfaction before applying section 14A read with rule 8D by referring to the books of accounts of the assessee as to how the disallowance worked out by the assessee is not wrong and is not acceptable. The Ld. A.R. relied on the decision of co-ordinate bench of the Tribunal in assessee’s own case in earlier years in ITA No.696/M/2017 & ors. order dated 24.04.2019 and ITA No.1279/M/2016 A.Y. 2010-11 order dated 08.11.2018. Therefore, the Ld. A.R. submitted that the order of Ld. CIT(A) should be set aside on the ground that it has failed to consider that no satisfaction has been recorded by the AO in the assessment order in view of the decision of the co-ordinate bench of the Tribunal. The Ld. A.R. further referred to the balance sheet of the assessee at page 8 of the paper book and submitted that assessee’s own funds which were to the tune of Rs.254,65,30,000/- and the investments in securities were far below the said amount and thus in view of the decision of Hon’ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd. (2014) 49 taxmann.com 335 (Bom.) no disallowance under rule 8D2(ii) is required to be made. Alternatively the Ld. A.R. submitted before the Bench that only those investments which fetched exempt income during the year should be considered for the purpose of working out the disallowance under rule 8D2(iii) as has been held by the Delhi bench of the Tribunal in the case

The Ld. D.R., on the other hand, strongly opposed the arguments of the Ld. A.R. by submitting that the proper satisfaction has been recorded by the AO in the assessment order and Ld. CIT(A) after considering all the facts of the assessee’s case upheld the order of AO. The Ld. D.R. also filed the written submissions at the time of hearing and prayed before the Bench that matter be decided after taking into consideration the said submissions and the order of Ld. CIT(A) may be upheld.

After hearing both the parties and perusing the material on record, we observe that in this case the issue is whether the AO has recorded objective satisfaction before invoking the provisions of section 14A read with rule 8D for calculating the disallowance of expenses attributable to earning of exempt income. We note that the assessee has made disallowance of Rs.6,91,341/- which has been tabulated by the tax auditor in the tax audit report. After perusing the assessment order carefully we observe that the AO has not recorded any satisfaction as to how the disallowance worked out by the assessee of Rs.6,91,341/- is wrong having regards to the books of accounts of the assessee. The issue is squarely covered in favour of the assessee by the decision of Hon’ble Bombay High Court in the case of “Godrej & Boyce Manufacturing Co. Ltd. Vs. DCIT [(2010) 328 ITR 81 (Bom)]” wherein it has been held that no disallowance section 14A read with rule 8D can be made if the AO has not recorded

The second issue raised by the assessee is in respect of excess interest charged under section 234C of the Act of Rs.5,90,691/-.

The facts in brief are that the assessee calculated the interest u/s 234C of the Act without giving credit of TDS of Rs. 14,85,028/-.

In the appellate proceedings, the Ld. CIT(A) upheld the order of AO by rejecting the contentions of the assessee raised in this context. The Ld. A.R. stated before the Ld. CIT(A) that the AO has calculated excess interest under section 234C of the Act by giving short credit of TDS to the tune of Rs.14,85,028/- which is wrong and has to be restored to the file of the AO with

Ld. D.R., on the other hand, relied on the order of authorities below.

After hearing both the parties and perusing the material on record, we observe that in this case the only issue is excess interest of Rs.5,90,691/- charged under section 234C which has occurred due to non granting of credit of TDS to the tune of Rs.14,85,028/-. In our opinion, this interest needs to be calculated correctly as per the provisions of law. Therefore, the issue is restored to the file of the AO with the direction to calculate the interest after allowing credit of TDS as per facts and law after affording a reasonable opportunity to the assessee. The ground is allowed for statistical purpose.

In the result, the appeal of the assessee is partly allowed for statistical purposes.