MAHARASHTRA SCOOTERS LTD.,PUNE vs. ASSISTANT COMMISSIONER OF INCOME-TAX,

आदेश आदेश / ORDER आदेश आदेश

PER D. KARUNAKARA RAO, AM :

There are four appeals filed by the Assessee against the separate orders of CIT(A)-6,9 Pune, dated 14-03-2016 and 29-09-2016 respectively involving Assessment Years 2008-09 to 2011-12.

The Appellant appeals against the impugned order dated 9th March, 2016 (received on 18th April, 2016) passed by the Commissioner of Income Tax (Appeals)-6, Pune, 411044, by upholding certain disallowances on the following amongst other grounds, each of which are in the alternative and without prejudice to any others.

engaged in the business of manufacture, the sale of scooters and parts

thereof, sale of dies for pressure die-casting etc. Assessee filed the return of

income declaring total loss of Rs.4,82,06,688/-. During the impugned

assessment year, assessee received dividend income of Rs.14,11,50,600/- and

claimed tax exemption of the same u/s.10(34) of the I.T. Act, 1961. In the

scrutiny assessment, AO invoking the provisions of section u/s.14A read with

Rule 8D(2)(iii) of the Rules, 1962. AO rejected the assessee’s submissions

that the expenditure incurred for earning of the exempt income is Rs.3,004/-

for the A.Y. 2008-09. Eventually, AO made addition of Rs.97,76,658/- (0.5%

of the average value of investment of Rs.195,53,31,585/- for the A.Y. 2008-09.

3.1 Similarly, the AO made addition of Rs.1,00,19,428/- for the A.Y. 2009-

10, Rs.54,04,368/- for the A.Y. 2010-11 and Rs.52,99,291/-. The AO invoked

the provisions of section u/s.14A read with Rule 8D(2)(iii) of the Rules, 1962

for all these years too.

3.2 There is dispute on the fact that assessee received dividend income of

Rs.14,11,50,600/- for the year under consideration. The dividend income

eared for other assessment years are Rs.11,59,28,128/- for the A.Y.rs 2009-

10 and 2019-11 and Rs.25,11,90,376/- for the A.Y. 2011-12 respectively.

disallowance made by the AO u/s.14A r.w. Rule 8D(2)(iii) of the I.T.Rules,

1962. Assessee submitted the disallowances is too excessive and

unreasonable. CIT() rejected the submissions of the assessee.

with the aforesaid grounds.

the assessee filed the following additional ground :

“The Ld. AO and the CIT(A) -6, erred in law and on facts in making & sustaining addition of Rs.97,76,658/- u/s.14A of the I.T. Act, 1961; without reaching any satisfaction as to incorrect working of the 14A disallowance of Rs.3,004/- as so claimed by the appellant. Ld. AO ought to have satisfied himself about correctness or otherwise of the disallowance of Rs.3,004/- as so claimed by the appellant during Assessment Proceedings u/s.143(3) vide letter dated 10-12- 2010.”

From the above grounds and additional ground, it is evident that the assessee

questions the disallowance on the ground of lack of satisfaction of the AO

before provisions of section 14A of the Act r.w. Rule 8D of the I.T. Rules, 1962

are pressed into service. Further, on merits, the assessee questions that the

assessee did not incur Rs.97,76,658/- for earning of the exempt income

Rs.3,004/- was the expenditure fit for disallowance u/s.14A r.w.r 8D of the

I.T. Rules, 1962. On the issue of satisfaction, Ld. Counsel for the assessee

drew parallel with the facts relating to the decision of Tribunal in the case of

Poonawalla Investment & Industries Pvt. Ltd. Vs. DCIT in ITA Nos. 245 to

250/PUN/2016, dated 28-02-2018 and in the case of Serum Institute of India Ltd. Vs. DCIT in ITA Nos. 1184 and 1538/PUN/2015, dated 08-06-2018 and

submitted that the relief was given in those cases on the ground of lack of

sustainable satisfaction recorded by the AO before the said provisions are

invoked.

record in stating incurring of expenditure of Rs.3,004/- which are suo moto

offered by the assessee during the assessment proceedings qua the existence

of satisfaction about the basic requirement of making disallowance

u/s.8D(2)(iii) of the I.T. Rules, 1962, Ld. Counsel for the assessee has no

answer to reply on this specific issue. Therefore, on hearing both the sides

on the issue of satisfaction, we decide the same against the assessee and hold

that the AO has rightly assumed jurisdiction u/s.14A r.w. Rule 8D(2)(iii) of

the I.T. Rules, 1962. Thus, the assessee’s attempt to request to take shelter

under the umbrella of the orders of the Tribunal in the case of is of no use.

Therefore, this part of the additional ground is admitted and dismissed after

due consideration.

submitted that the disallowance of expenditure quantified mechanically

applying the provisions of section 14A r.w. Rule 8D(2)(iii) of the I.T. Rules,

1962, is not sustainable universally. Referring to the jurisdictional High

Court judgment in the case of Pr. CIT Vs. Reliance Capital Asset Management

Ltd. reported in 400 ITR 217 (Bombay), Ld. Counsel for the assessee

submitted that the formula envisaged in the said rule need not be followed

universally in all cases. He also mentioned that in certain cases the formala

need not be applied. Bringing our attention to the contents of Para No.22 of

the said judgment, Ld. Counsel for the assessee submitted that making adhoc

disallowance having regard to the number of dividend transactions can also be a sustainable option available by the AO for the A.Y. 2008-09, i.e. post

amended period of Rule 8D of I.T. Rules, 1962.

submitted that the year under consideration A.Y. 2008-09 since belonging to

the post amended period, applying formula, i.e. 0.5% of the average of the

value of investments, becomes relevant. Replying to the Ld. Counsel’s

reliance on the judgment of Reliance Capital Asset Management Ltd. (supra),

Ld. DR for the Revenue submitted that this aspect of ad-hoc disallowance

linked to the number of transactions, was never put scrutiny before the

Revenue authorities. Therefore, the opinion of the AO/CIT(A) is required to be

obtained. Emphasizing on the need for remanding for this purpose and for

applying the ratio of the said judgment, Ld. DR argued for remanding this

issue for the file of AO for fresh adjudication.

of expenditure, in application of the said jurisdictional judgment, we find

there is no dispute that the said judgment was delivered in the context of the

A.Y. 2007-08 and 2008-09. A.Y. 2008-09 is the first year of amendment to

Rule 8D of the I.T. Rules, 1962. We find it relevant to extract the ratio of the

judgment of Hon’ble Bombay High Court in the case of Reliance Capital Asset

Management Ltd. (supra) and the same reads as under :

“Held : Where assessee, an Asset Management Company of Reliance Mutual Fund, invested its own funds in Reliance Mutual Fund and claimed dividend income and long-term capital gains as exempt, rule 8D(2)(iii) not applicable to work out disallowance u/s.14A.”

10.1 Further, we also perused the contents of Para No.22 of the judgment

and the same reads as under :

“22. Therefore, these transactions were analysed and in the backdrop of the business of the assessee, the Tribunal concluded that there was no necessity to apply the formula prescribed in Rule 8D(2)(iii) of the Rules. We are, therefore, not in agreement with Mr. Suresh Kumar that Rule 8D(2)(iii) has been overlooked or ignored by the Tribunal completely. In the peculiar facts and circumstances of the assessee's case and the nature of its investments made, the Tribunal concluded that the disallowance worked out by the assessee should have been accepted. However, it did not accept the figure of disallowance worked out by the assessee. That although the Tribunal, in one line or sentence in para 8, says that the disallowance to be made under Rule 8D is determined at Rs.3,50,000/-, we are not in agreement with Mr. Suresh Kumar that the Tribunal has accepted the applicability of this Rule/sub-rule/clause. This one sentence or one line cannot be read in isolation and out of context. Once the formula prescribed in Rule 8D(2)(iii) of the Rules could not have been applied is the essential conclusion, then, merely because the Tribunal did not accept the working of disallowance by the assessee in its entirety, does not mean that the appeal raises a substantial question of law. We do not think that the Tribunal's exercise can be termed as totally erroneous or illegal. It is neither perverse. The Tribunal's order cannot be said to be vitiated by an error of law apparent on the face of the record. We do not think that the working by the Tribunal or the determination of the disallowance at Rs.3,50,000/- does not meet the ends of justice. It is restricted bearing in mind the facts and peculiar to the assessee's case. Partly the assessee's arguments have been accepted and the appeal allowed by setting aside the order of the Assessing Officer and that of the Commissioner of Income Tax (Appeals). We do not think that the question proposed by Mr. Suresh Kumar is a substantial question of law.”

From the above, it is evident that there is need for scrutinizing the facts of the

present case qua the binding of the judgment in the case of Reliance Capital

Asset Management Ltd. (supra) for the purpose of exclusion of the present

case from the applicability of the formula laid down in Rule 8D(2)(iii) of the I.T.

Rules, 1962. Therefore, agreeing with the Ld. DR, the issue stands remanded

to the file of AO for fresh adjudication and for want of a speaking order.

Needless to say, the AO shall afford reasonable opportunity of hearing to the

assessee in accordance with the set principles of natural justice. Accordingly,

grounds raised by the assessee are allowed for statistical purposes.

A.Y. 2008-09 remanding the issue to the file of AO for fresh adjudication and

pass a speaking order is applicable to the other assessment years too, i.e.

A.Yrs. 2009-10 to 2011-12.

purposes.

Order pronounced on this 12th day of October, 2018.

Sd/- Sd/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) �याियक सद�य �याियक सद�य /JUDICIAL MEMBER लेखा लेखा सद�य सद�य / ACCOUNTANT MEMBER �याियक �याियक सद�य सद�य लेखा लेखा सद�य सद�य

पुणे Pune; �दनांक Dated : 12th October , 2018 सतीश आदेश आदेश क� आदेश आदेश क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to : अ�ेिषत

अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2. आयकर आयु�(अपील) / The CIT (Appeals)-6,9 Pune. 3. आयकर आयु� / The Pr. CIT-5, 9,Pune. 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “बी 5. बी” / DR ‘B’, बी बी ITAT, Pune; गाड� फाईल / Guard file. 6. आदेशानुसार आदेशानुसार/ BY ORDER,स आदेशानुसार आदेशानुसार

/ True Copy //

Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune.