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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: Shri C.N. Prasad & Shri Rajesh Kumar
Date of hearing 11-10-2018 Date of pronouncement -10-2018 O R D E R
Per Rajesh Kumar , AM :
This appeal filed by the assessee is directed against the order of CIT(A)-4, Mumbai pertaining to assessment year 2012-13.
The only issue raised by the assessee is against the confirmation of disallowance of expenditure of Rs.5,13,482 u/s 14A of the I.T. Act r.w.r.
8D of I.T. Rules, 1962 as made by the AO. The assessee has also challenged he addition on the basis that no satisfaction has been recorded AO before invoking Rule 8D with reference to the books of 2 ITA 1390/Mum/2017 account maintained by the assessee.
The facts in brief are that the AO found, during the course of assessment proceedings that assessee has earned dividend of Rs.5,50,883 comprising dividend from shares and securities of Rs.1,91,513 and from mutual funds of Rs.3,59,370/-. The Ld.AO found that the assessee has not bifurcated expenses towards earning of exempt income and after invoking the provisions of Rule 8D(2), worked out the disallowance of Rs.5,13,482 u/r 8(2)(iii) of I.T. Rules, 1962. In the appellate proceedings, the Ld.CIT(A) confirmed the order of AO by holding that the assessee has not bifurcated the expenditure pertaining to earning of exempt income, therefore, Rule 8D(2) was rightly invoked.
The Ld.AR vehemently contended that the assessee has not incurred any expenses in connection with earning of exempt income.
The Ld.AR while pointing out from the assessment order submitted that the AO has not recorded any satisfaction by referring to the books of account maintained by the assessee as to how the expenses should have been bifurcated by the assessee in relation to the exempt income.
The Ld.AR further submitted that while invoking provisions of section 14A r.w.r. 8D(2)(iii) of the I.T. Rules, 1962, the AO has to record his satisfaction with reference to books of account as to how the stand of the assessee is incorrect and only thereafter the provisions of Rule 8D
3 ITA 1390/Mum/2017 could be invoked; but, in the present case, nothing of that sort was done by the AO. The Ld.AR submitted that in view of the ratio of judgement of Hon’ble Bombay High Court in the case of CIT vs Reliance Utilities Pvt Ltd 313 ITR 340 (Bom), the addition as made by the AO should be deleted.
Secondly, the Ld.AR submitted that the assessee has maintained separate books of account in respect of the dividend income earned by pointing out to paper book pages 34 & 35, which a copy of P&L Account and balance-sheet, wherein the assessee submitted that the only expenses were bank commission, legal and porofessional charges and conveyance expenses aggregating to Rs.9,102 whereas the dividend from mutual funds and shares were Rs.3,72,865. The only expenses which can be attributed is legal and professional expenses of Rs.1,000.
While referring to pages 41 & 42 which is a copy of P&L account and balance-sheet in respect of proprietory business under the name & style of Aradhana Films, the Ld.AR pointed out that the only expense incurred was STT paid of Rs.6,199 which was paid in respect of RIL regular saving fund on which the assessee incurred long term capital loss of Rs.2,20,339. The Ld.AR submitted that none of the expenses debited in the P&L Account which as filed at page 41, related to earning of exempt income. Therefore, the disallowance as worked out by the AO and 4 ITA 1390/Mum/2017 confirmed by the Ld.CIT(A) is totally wrong and against facts of the case.
The third plea taken by the Ld.AR is that the AO has disallowed expenses u/r 8D(2)(iii) by taking all investments, which have not yielded exempt income and, therefore, the same is also wrong and have to be excluded while calculating the disallowance.
The Ld.DR, on the other hand, relied upon the order of the lower authorities.
We have perused the order of AO and found that no satisfaction has been recorded with reference to the books of account of the assessee and AO proceeded to invoke Rule 8D without recording his satisfaction, which in our opinion, is wrong and against the settled law. In the case of Godrej & Boyce Mfg Co Ltd vs ACIT 382 ITR 81 (SC) it has been held that recording satisfaction is a pre-requisite having regard to the books of account maintained by the assessee failing which the disallowance has to be deleted. We, therefore, following the judgement of Hon’ble Apex Court in the case of Godrej & Boyce Mfg Co Ltd vs ACIT (supra), delete the disallowance made by the by setting aside the order of Ld.CIT(A).
In the result, the appeal filed by the assessee is allowed.
5 ITA 1390/Mum/2017 Order pronounced in the open court on 29th October, 2018.