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Income Tax Appellate Tribunal, DELHI BENCHES : F : NEW DELHI
Before: SHRI R.S. SYAL & SMT BEENA PILLAI
Date of Hearing : 21.11.2017 Date of Pronouncement : 22.11.2017 ORDER PER R.S. SYAL, VP: These two appeals filed by the assessee relate to assessment years 2011-12 and 2012-13. Since some of the issues involved are common, we are, therefore, disposing off these appeals by this consolidated order for the sake of convenience.
Assessment Year 2011-12
The first ground raised in this appeal is against confirmation of disallowance of Rs.3,25,201/- made by the Assessing Officer u/s 14A of the Income-tax Act, 1961 (hereinafter also called ‘the Act’).
Briefly stated, the facts as recorded in para 2 of the assessment order are that the assessee earned exempt dividend income of Rs.45,73,350/-. No disallowance was offered u/s 14A of the Act. On being called upon to state the reasons for not offering any disallowance, the assessee furnished a reply, which has not been discussed in the assessment order. The Assessing Officer found the assessee’s reply devoid of any merits in view of sub-section (2) and sub-section (3) of section 14A. He, thereafter, computed disallowance u/s 14A read with Rule 8D at Rs.34,76,439/-. The ld. CIT(A) dealt with this issue in para 4.1.2. of his order. He characterized the assessment order cryptic inasmuch as the Assessing Officer did not bother to give any satisfaction. Considering the mandate of the Hon'ble jurisdictional High Court in the case of Maxopp Investments Ltd. vs. CIT (2012) 347 ITR 272 (Del) and that of the Hon'ble Bombay High Court in Godrej & Boyce Manufacturing Company Ltd. (2010) 328 ITR 81 (Bom), the ld. CIT(A) held that since the Assessing Officer did not arrive at the requisite satisfaction and accordingly no disallowance u/s 14A could be made. Thereafter, he restricted the disallowance to Rs.3,25,201/- at the rate of 0.5% of investments by noticing that the assessee’s claim could not be accepted that it did not incur any expenditure. The assessee is aggrieved against the sustenance of such disallowance.
We have heard both the sides and perused the relevant material on record. It is found from the assessment order that the Assessing Officer did not record any satisfaction in terms of section 14A(2) which provides that the Assessing Officer shall determine the amount of expenditure incurred in relation to exempt income if he: “having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act.” It is obvious from sub-section (2) of section 14A that recording of satisfaction by the Assessing Officer is sine qua non for working out disallowance u/s 14A.
The Hon'ble jurisdictional High Court in CIT vs. Hero Management Services Ltd. (2014) 360 ITR 68 (Del), has held that: “Further to invoke Rule 8D, the Assessing Officer has to first record a finding that he was not satisfied with the correctness of the claim for expenditure made by the assessee in relation to income which did not form part of the total income under the Act. No such satisfaction has been recorded by the Assessing Officer.” In the light of this categorical finding, the Hon'ble High Court deleted the disallowance made u/s 14A. Similar view has been taken in Maxopp Investments Ltd. (supra), in which it has been held that: “the requirement of the Assessing Officer embarking upon a determination of the amount of expenditure incurred in relation to exempt income would be triggered only if the Assessing Officer returns a finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Therefore, the condition precedent for the Assessing Officer entering upon a determination of the amount of the expenditure incurred in relation to exempt income is that the Assessing Officer must record that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure.”
In view of the foregoing discussion, it becomes vivid that the Assessing Officer must record satisfaction in terms of sub-section (2) of section 14A before commencing to work out the amount of disallowance u/s 14A of the Act.
Adverting to the facts of the instant case, we find it as a matter of fact that the Assessing Officer, in fact, did not record any satisfaction as stipulated u/s 14A(2). Firstly, he reproduced sub-sections (2) and (3) of section 14A and, thereafter, started computing disallowance under Rule 8D. The ld. CIT(A) has devoted six paras, namely, 4.1.2 to 4.1.6 for reaching at the conclusion that the Assessing Officer did not record any satisfaction, which is a pre-condition for making disallowance u/s 14A.
Notwithstanding his finding recorded in these six paras, the ld. CIT(A), vide para 4.1.7, still proceeded to restrict disallowance at 0.5% of investment, being, the last limb of rule 8D. When the pre-requisite condition for making disallowance u/s 14A, being the recording of the satisfaction by the Assessing Officer not accepting the correctness of the assessee’s claim, was lacking, the ld. CIT(A) should not have come to the stage of computation of the amount of disallowance. As the jurisdictional condition for making disallowance u/s 14A was wanting, the ld. CIT(A) ought to have deleted the entire addition instead of restricting it to a lower level. The Revenue appears to have accepted the ld. CIT(A)’s order on the question of not recording of satisfaction by the AO inasmuch as nothing has been brought to our notice by the ld. DR to demonstrate that the Department has preferred any appeal on this score before the tribunal. The picture which, therefore, emerges is that the Assessing Officer did not record any satisfaction as stipulated in sub- section (2) of section 14A and as the sequitur, the disallowance u/s 14A could not have been made. We, therefore, delete the sustenance of addition to the tune of Rs.3,25,201/-.
The only other ground in this appeal is against allowing deduction of Rs.12,369/- out of Rs.49,478/- written off during the year.
The facts apropos this issue are that the assessee wrote off deferred revenue expenditure amounting to Rs.49,478/- and charged the same to the Profit & Loss Account. The Assessing Officer made addition of Rs.49,478/-. However, the ld. CIT(A), following the view taken in earlier years in the assessee’s own case for assessment year 2009-10 and 2010-11, held that the assessee should have claimed deduction at 1/10th of the expenditure for the present year and the next two years. It was further observed that the amount was actually written off in three years.
Following the principle of consistency, he directed the Assessing Officer to allow deduction for Rs.12,369/- and the disallowance of the remaining amount was confirmed. The assessee is aggrieved against the confirmation of such disallowance.
Having heard both the sides and perused the relevant material on record, it is observed that the ld. CIT(A) followed the view taken by him in the assessee’s own case for two preceding years. There is nothing on record to suggest that such a view has been altered in the further appeal.
The assessee’s contention about bringing temporary structure into place during the year warranting full deduction, is not backed by any evidence whatsoever. In the given circumstances, we uphold the view taken by the ld. CIT(A) on this score. This ground is not allowed.
Assessment Year 2012-13
The only issue raised in this appeal is against the confirmation of disallowance u/s 14A read with Rule 8D at 0.5%.
Both the sides are in agreement that the facts and circumstances of making disallowance u/s 14A and sustaining it partly in the first appeal are mutatis mutandis similar to those of the preceding year. Similar to the preceding year, the Assessing Officer computed disallowance u/s 14A in the same manner without recording any satisfaction. The ld. CIT(A) again noticed that the Assessing Officer did not record any satisfaction and, as such, his view was not sustainable. He, however, confirmed disallowance for this year again at 0.5%. In the absence of there being any difference in the factual or legal position for the year in question vis-à-vis the preceding year, we follow the view taken hereinabove and order for the deletion of the entire disallowance u/s 14A.
In the result, the appeal for the assessment year 2011-12 is partly allowed and that for the assessment year 2012-13 is allowed.
Order pronounced in the open court on 22nd November, 2017.