EXIM SCRIPS DEALERS PVT. LTD., ,KOLKATA vs. ITO, WARD - 5(3) , KOLKATA

The assessee in the present case is a non-banking financial company which is engaged in the business of investment in loans and advances. The return of income for the year under consideration was filed by it on 28.09.2015 declaring a total income of Rs. 28,30,083/-. In the said return, dividend income of Rs. 34,28,861/- received during the year under consideration was claimed to be exempt by the assessee. In the computation of total income, disallowance of Rs. 3,53,488/- was made by the assessee on account of expenses incurred in relation to the said exempt income as required by section 14A. In the assessment completed u/s 143(3) vide an order dated

Assessment Year: 2015-16 Exim Scrips Dealers Pvt. Ltd. 28.04.2017, the AO worked out the expenses incurred by the assessee in relation to the exempt income at Rs. 10,68,904/- by applying Rule 8D and keeping in view that the total expenses actually incurred by the assessee during the year under consideration were only to the tune of Rs. 7,08,126/-, he made a further disallowance u/s 14A to the extent of Rs. 3,54,638/- (7,08,126 – 3,53,488). On appeal, the Ld. CIT(A) confirmed the said disallowance made by the AO u/s 14A read with Rule 8D. Aggrieved by the order of the Ld. CIT(A), the assessee has preferred this appeal before the Tribunal.

I have heard the arguments of both the sides and also perused the relevant material available on record. As rightly contended by the learned counsel for the assessee, when certain disallowance u/s 14A was offered by the assessee suo moto in the computation of the total income, the AO cannot recompute the disallowance u/s 14A by applying Rule 8D unless he is dissatisfied, having regard to the books of account of the assessee, that disallowance offered by the assessee u/s 14A is not correct. A perusal of the assessment order passed by the AO for the year under consideration shows that no such dissatisfaction of the AO is discernible from any observation/finding recorded by the AO and even the learned DR has not been able to dispute this position. It is also observed that a similar disallowance u/s 14A read with Rule 8D was made by the AO in assessee’s own case for AY 2011-12 without recording any dissatisfaction regarding the correctness of the disallowance offered by the assessee u/s 14A suo moto and such disallowance made by the AO by applying Rule 8D was deleted by the Tribunal vide its order dated 04.11.2016 passed in holding that the disallowance made by the AO

In the result, the appeal of the assessee is allowed. Order Pronounced in the Open Court on 7th May, 2019.