DEPUTY COMMISSIONER OF INCOME TAX 1(1)(1), MUMBAI vs. BENNETT PROPERTY HOLDING COMPANY LIMITED, MUMBAI

This is an appeal filed by Revenue directed against the order of Commissioner of Income Tax (Appeals) (in short CIT(A))-6, Mumbai dated 21/09/2017 for A.Y.2013-14 in the matter of order passed u/s/.143(3) r.w.s. 254 of the Income Tax Act, 1961. 2. The only issue to be decided in this appeal is as to whether the Ld. CIT(A) was justified in deleting the disallowance made u/s.14A of the Act r.w.r.8D of the Rules in the facts and circumstances of the case.

Brief facts of the issue are that the assessee company earned income from mutual funds aggregating to Rs.8,57,04,289/- and claimed the same as exempt u/s.10(34) of the Act. The assessee suo moto made disallowance of Rs.1,91,935/- in the return of income. The workings in the same are as under:- 4. The common expenses of Rs. 40,06,392/ - incurred by the Assessee Company comprised of the folio wing: - SLA Expenses (Service Agreement) - Rs. 13,23,600/- Salary of General Manager (Finance) - Rs. 6,17,202/- Salary of Managers: - Rs. 20,65,590/- (handling all activities of the Company) Total - Rs. 40,06,392/- The SLA expenses represented services availed by the Assessee Company from its parent company, such as, Human Resources related matters, Treasury, ERP Resources, etc., that is used by the Assessee Company for all its activities. Consequently, while filing its return of income, for A.Y. 2013-14, the Assessee Company disallowed an amount Rs. 1,91,935/- out of the common expenses of Rs. 40,06,392/-, which was arrived at in the ratio of 'exempt income' to 'total income'.

The Ld. CIT(A) deleted the disallowance u/s.14A of the Act in the sum of Rs.2,65,43,000/- by observing as under:- 9. I have carefully considered the facts of the case, the stand taken by the A.O. in the assessment order and the contentions raised by the Ld. AR in the written submissions. The Appellant, pursuant to a Scheme of Arrangements under Section 391 to 394 of the Companies Act, 1956, had acquired the real estate division that included units of mutual funds, with effect from 1st April 2011. Consequently, the Appellant had not borrowed any monies for investment in units. The expenses, other than those which related to the real estate division, aggregating Rs.40,06,392/- were, therefore, attributable also to the earning of the exempt income from units. The Appellant hence allocated the common expenses incurred in the ratio of exempt income to total income and disallowed Rs. 1,91,935/- under Section 14A of the IT. Act, 1961 while filing its return of income. The observations of the Ld. A.O in para 5.2 of his order to invoke Rule 8D clearly show that he has not arrived at any objective satisfaction with regard to the correctness of the claim of the Appellant to disallow the common expenses in the ratio of exempt income to total income under Sec 14A of the IT Act The observations in the decision of the Hon'ble Bombay High Court in Godrej & Boyce Mfg. Co. Ltd. vs. DCIT (328 ITR 81) relied upon by the Ld. AR, clearly lay down that the A.O. has to arrive at an objective satisfaction as to the correctness of the disallowance made by the Appellant before seeking to invoke Rule 8D. A.O. cannot ipso facto invoke Rule 8D straight away without coming to such a satisfaction. 9.1 Under similar facts and on the similar basis CIT(A) in the appellant's own case P has decided the ground in favour of the appellant. Under the circumstances and respectfully following the decision of the jurisdictional High Court in the case of Godrej & Boyce Mfg. Co. Ltd. vs. DCIT (328 TTR 81), I am inclined to agree with the submissions of the Ld. AR. The M/s. Bennett Property Holding Co. Ltd., addition of Fjfs.2,65,43,000/- made by the A.O. by invoking Rule 8D is, therefore, deleted.

Aggrieved, Revenue is in appeal before us. We have heard rival submissions. We find that the Ld. AO had not recorded any objective satisfaction having regard to the accounts of the assessee that the claim made by the assessee in disallowing a sum of Rs.1,91,935/- was incorrect before proceeding to computation mechanism provided in rule 8D of the rules. We find that the provisions of Section 14A(2) of the Act r.w.r. 8D(1) of the rules categorically state that the Ld. AO had to record his objective satisfaction before resorting to Rule 8D(2), which in the instant case admittedly has not been done by Ld. AO. In this regard, reliance placed by the Ld. AR on the decision of Hon’ble Jurisdictional High Court in the case of PCIT vs. Reliance Capital Asset Management Ltd., reported in 400 ITR 217 (Bombay) is very well founded and is squarely applicable to the facts of the instant case. Similar decision was also rendered by the decision of Co-ordinate Bench of this Tribunal in assessee’s own case for A.Y.2012-13 in dated 28/02/2018. Respectfully following the aforesaid judicial precedents, we do not find any infirmity in the order of Ld. CIT(A) deleting the disallowance u/s.14A of the Act in the facts of the instant case, accordingly, the ground raised by the Revenue is dismissed.